In the world of investment, which the marketplace of buying and selling assets, Forex is one of the accessible instruments to trade with. Forex is a foreign currency exchange. Billions of dollars rotate in the market just in forex trades.
Every day traders trade in such a volume that Forex is now the most significant and most popular class of assets in the market. For beginner-level traders, it is the best-suggested asset because of its low entry requirement and less profit and loss margin.
There are few factors that every trader beginner or experienced trader keeps an account of, such as currency pair, pip value, and market analysis, etc. and the key factor among all these factors is currency pair. In this article, we will provide a brief guide for beginners on currency pair and fundamental market analysis.
What is a currency pair?
A currency pair is the quotation of two individual currencies along with the relative value of one currency against the other currency in the Forex market. For example, the USD/EUR this is the currency pair of U.S dollars and Euro, here the currency is the price comparison of a currency in relation to another, is given in currency pair. There is a base currency and quote currency. A currency pair indicates a trader how much quote currency is required to buy the base currency.
- Base Currency: The currency to buy, which is on the left side of a currency pair. For example USD/EUR, where USD is the base currency
- Quote currency or counter currency: The currency to sell, which is on the right of a currency pair, for example, USD/EUR, here EUR is the quote currency or counter currency.
Currency pair trade
The forex market or the foreign exchange market is the place where the trade of currency pairs is situated. This market allows sellers or brokers or dealers to sell currency pairs and buyers or traders to buy these pairs.
- Seller, Broker, Dealer: Brokers offer currency pairs to the buyers or traders. These brokers are sometimes referred to as dealers.
- Buyer or traders: Buyers or traders are the ones who purchase these currency pairs.
Buying and selling process
All forex trade is a simultaneous process of buying one currency and sell another currency. For instance, if you are buying a currency pair, that means you are buying the base currency and indirectly selling the quote currency. The common term that a trader comes across while buying and selling currency pair is
- Bid: Bid is the buying price in a currency pair. This is the price that buyers pay as quote currency to buy the base currency.
- Ask: Ask is the price to sell in a currency pair. It is the price you ask for selling a base currency against the quote currency.
Types of currency pairs
As there are many countries in the world, so it is expected that there will be many currency pairs, but that’s not true. The market revolves around the most used currencies. So there are three types of currency to categorize the significance of currency pairs. They are
- Major currency pairs: The most popular and widely used currency pairs are known as the major currency pairs. This pair consists of high liquidity and extensive usage among the traders in the market. These pairs are;
- EUR/USD: Euro and U.S dollar
- USD/JPY: U.S dollar and Japanese Yen
- GBP/USD: British pound and U.S dollar
- USD/CHF: U.S dollar Swiss frank
- USD/CAD: U.S dollar and Canadian dollar
- AUD/USD: Australian dollar and U.S dollar
- NZD/USD: Newzealand dollar and U.S dollar
- Cross currency Pair: A cross currency pair is a currency pair that does not involve the U.S dollar in the pair. Few cross currency pair are
- EUR/JPY: Euro and Japanese Yen
- EUR/GBP: Euro and the British pound
- JPY/CAD: Japanese Yen and Canadian dollar
- GBP/JPY: British pound and Japanese Yen
- EUR/CAD: Euro and Canadian dollar
- EUR/AUD: Euro and Australian Dollar
- Exotic currency Pair: The currency pair that involves one Common or most used currency and another currency from emerging economies is known as Exotic currency pairs such as
- USD/HKD: U.S dollar and Hong Kong dollar
- USD/BRL: U.S dollar and Brazilian Real
- USD/SAR: U.S dollar and Saudi riyal
So these are some essential knowledge that can guide you as a beginner in the forex market. For a beginner-level trader, it is essential to know how to analyze the forex market. Proper analysis will give you an insight into the market’s condition. This insight will guide you to make a profitable strategy as a trader. Analogists use different types of components like graphs and charts, but that is more of a technical strategy to do an analysis.
There is a more fundamental manner of making an analogy on the forex market. Fundamental analysis is not very challenging but gives a brief detail about some specifics, which provides a short idea about the direction of the forex market.
What is the Fundamental analysis?
Fundamental analysis is a method of analysis that observes and studies the economic and financial condition of a country to make forecasts on price movement in the market. Fundamental analysis in Forex mainly focuses on
- The state of the economy of a country
- Current GDP
- Employment rate
- National productivity
- International trade
- Interest rate
It also studies the factors related to all these factors above to forecast the price movement of a nation’s currency. All these given factors play a role in creating a shift in the price of a currency, which is very useful for the forex trader. There are few indicators that a financial analyst can follow to get this information.
What to look for
Analysts usually look for reports that give them an idea about the financial and economic outlook of a nation to make an analysis. These are regularly released reports by government or non-government financial institutions.
- Economic report: These scheduled reports released by the government or non-government organizations. These reports provide the measurement of the economic condition of a nation. Anything related to the economy of a country, inflation, or productivity that can affect the economic health of the nation can be found in this report.
- Industrial Report: These reports provide news about any changes in industrial production. This indicates a change in any industrial products such as mining, increase, or decrease of factories in a nation, and utility production.
- Gross domestic product (GDP): It is a holistic measurement of a country’s economy. It broadcast the market value of all goods and services of a country in a given year.
- Consumer Price index: The consumer price index broadcasts the price of consumer goods of more than two hundred categories. When this report is compared with the report of the country’s export, it shows a brief result on a country’s products and services.
- Last but not least, one must have an eye on the economic and financial calendar.
Many economic reports can function as an indicator. To have a fundamental analogy, these reports can work as the eyes and ears of an analyst to make a fundamental analogy on the forex market.