Currency Trading

Currency trading involves the "majors" which are the British Pound (GBP), Euro (EUR), Japanese Yen (JPY), Swiss Franc (CHF) and the US Dollar (USD). The Canadian Dollar (CAD) and the Australian Dollar (AUD) are beginning to be added to the majors category by many traders.

Why are currencies trading in pairs?
The simple answer is, the currency on the right side of the pair (ie., EUR/USD) establishes the comparative value for the base currency (the currency on the left side of the pair). By pairing two currencies a fluctuating value can be established for the one versus the other. In other words, how is the Euro doing against the dollar or how many dollars does it take to buy one Euro.

Cross Currency Pairs
Cross Currency Pairs are any currency pairs that don't include the US dollar. Some cross currency pairs move very slowly and trend well which makes them ideal for the beginning Forex trader. However, some cross currency pairs move very quickly and are extremely volatile.

Traders might consider utilizing cross currency pairs as a way to diversify their portfolio. Many cross currency pairs offer greater return potential with enhanced interest (also referred to as swap, rollover interest or carry forward interest) that is paid on open positions. Swap is a credit or debit as a result of daily interest rates. A lot of the time cross currencies yield higher interest rates that the major currencies and are traded for the purpose of collecting the interest on the trade.