Saturday, 21 April 2018

Trading Manual Part 9: Major, Minor & Exotic currency pairs

Major, Minor & Exotic currency pairs

In the world of currency trading, all the different currency pairs are placed in 3 categories’. We
call these: Major, Minor and Exotic’s. Below, you can find these 3 with their
associated currency pairs (assets).


The major currency pairs all contain the US Dollar on one side — Either on the base
side or quote side. They are the most frequently traded pairs in the Forex market.
The majors generally have the lowest spread and are the most liquid. The EUR/USD is
the most traded pair with a daily volume of nearly 30% of the entire market.



Currency pairs that do not contain the US Dollar are known as minors. Historically, if
we wanted to convert a currency, we would have to convert the currency into US
Dollars first, and then into the currency we desired.

With the introduction of currency crosses we no longer have to do this tedious
calculation as all brokers now offer the direct exchange rates. The most active crosses
are derived from the three major Non US Dollar currencies. (the Euro, GB Pound and
the Yen). These currency pairs are also known as the minors.



forex table


Exotic currency pairs are made up of a major currency paired with the currency of an
emerging or a strong but smaller economy from a global perspective such as Hong
Kong or Singapore and European countries outside of the Euro Zone.
These pairs are not traded as often as the majors or minors, so often the cost of
trading these pairs can be higher than the majors or minors due to the lack of
liquidity in these markets.



In Forex, investors use leverage to profit from the fluctuations in exchange rates
between two different currencies. The leverage that is achievable in the Forex and CFD market
is one of the highest that investors can obtain. Leverage is a loan that is provided to
an investor by the broker who is handling his or her Forex account. When an investor
decides to invest in the Forex  or CFD market, he or she must first open up a margin account
with a broker. Usually the amount of leverage which is provided is either 50:1, 100:1
or 200:1, depending on the broker and the size ofthe position the investor is trading.
A standard lot size in trading is done on 100,000 units of currency, so for a trade of
this size, the leverage provided is usually 50:1 or 100:1. Leverage of 200:1 is usually
used for positions of 50,000 units or less.

To trade $100,000 of currency, with a margin of 1%, an investor will only have to
deposit $1000 into his account. The leverage provided on a trade like this is 100:1.
Leverage of this size is significantly larger than the 2:1 leverage commonly provided
on equities and stocks.

Although 100:1 may seem extremely risky, the risk is significantly less when you
consider that currency prices usually change by less than 1% during swing trading. If
currencies fluctuated as much as equities, brokers would not be able to provide as
much leverage.

Although the ability to earn significant profits using leverage is substantial, leverage
can also work against investors. For example, if the currency underlying one of your
trades moves in the opposite direction of what your analyses told you, leverage will
greatly amplify the potential losses. To avoid such a catastrophe, we use a strict risk
and money management.


Margin is the amount of money you need to open a position on your Forex account.
It's basically an amount which is set aside for every new trade you open. For example,
when you have a $1000 margin balance and you need a 1% margin minimum to open
a position, you can control a position of $100,000. This makes it possible for a trader
to leverage their account 100:1.

How higher the leverage chosen, the higher the available margin percentage will be!
When you use to high lot sizes or open to many positions, it could happen that your
account falls under the minimum amount which is required to keep a position open.
When this happens you get a "margin call". When this occurs, you will need to
deposit more money in your trading account, or you will need to close positions.
When your margin percentage falls under the 50%, the broker mostly cut your trades
automatically what will literally make you cry. This is why we trade safe and stick to
our risk management plan.

This is also the reason why you need to be very careful with the amount of positions
you open, when a high leverage is chosen. For example, when you opened your
trading account on a 400:1 leverage, 2 standard lot sizes would be to much as you
have a S2000 account. 2 standard lot sizes will bring you a pip value of somewhere
around $20. When you take the margin in consideration, you would have around
$1300 left in your trading account, this would make it possible to get your account
wiped out in about 65 pips. To avoid all this, we use a lot size calculator...!


Check our coverage strategy for forex and crypto trading: Coverage strategy

Avoid scams check our scam brokers and system list: Trading scams

Trading Manual Part 9: Major, Minor & Exotic currency pairs was first published on: ORN

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