Trading in foreign exchange or the 'Forex' market always involves buying and selling in currency pairs. Each time you buy a currency pair, you end up purchasing the base currency while selling the quote currency.
Simply said: A currency pair comprises the quotation of two different currencies, with the currency price quoted against the other. The first currency listed among the pair is always the base currency, followed by the quote currency.
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How World Currencies are Traded?
All the world's currencies are given a three-letter code that looks like a ticker symbol of a company stock. With more than 175 currencies all over the world, only a few dominate the forex market. These are the US Dollar, the Euro, Great Britain's Pound, Japanese Yen, Australian Dollar, Canadian Dollar, New Zealand Dollar and the Swiss Franc (CHF).
All currency trading is engaged through two currencies being traded. These are called pairs, and the seven major currency pairs that comprise more than 70% of forex exchange are:
The EUR/USD Currency Pair
The Euro and US Dollar currency pair is widely believed to be as the most liquid currency pair in the foreign exchange market today, with the US Dollar and the Japanese Yen being the next most popular pair.
Commonly referred by its shorter term of "EUR/USD", which indicates how much USD (quote currency) is required to buy 1 Euro (base currency). This pair is quoted as 1 EUR per (x) USD. For example, if the EUR/USD is trading at 1.75, it would specify that it will cost 1.75 US$ to buy 1 EUR.
History of the EUR/USD
Because the Euro currency was only introduced in 1999 following the establishment of the European Union in 1993 and the Treaty of Maastricht in 1991, the currency pairing of EUR/USD is fairly new. Despite its infancy age, it has become a major power in the today's forex market.
Compared to the US Dollar which traces its origin back to 1790s during the same time of the drafting of the United States Constitution, the US dollar compliments the Euro very well because the two currencies represent the most influential economic regions in the planet.
The EUR/USD pairing has seen its share of volatile period between 2008 until 2014 when the Euro experienced a steep drop in its value caused by the fallout of the 2008 world financial crisis. In the following years up to the present day, the EUR/USD managed to bounce back thanks to several positive economic advancements. Although, political climate and economic swings still plays a large role in affecting the price of this currency pairing.
How to Read a EUR/USD Price?
The Forex market is widely different from the stock market where the share values directly pertains to a stock price. For currency pairs, the price represents the exchange rate of two currencies.
The direct indicator is the base currency. If the pair is quoted at 1.40, it indicates $1.40 is needed to buy 1 euro.
When a forex trader grabs a long EUR/USD position at 1.40, and as it increases to 1.60, it means the EUR got stronger while the USD weakens. To purchase the same Euro now costs $1.60 more, thus making the US dollar weaker and the Euro stronger.
Please remember: The base currency of these two is fixed and signifies one unit. Therefore, the intensity of weakening and strengthening is not reflected in the value. The EUR/USD rate can soar because of two reasons; either the USD is got weaker or the EURO trended upward. Both conditions result in an increased price and an equivalent movement in the forex chart.
Important Driving Factors to Remember When Trading EUR/USD
In order to increase your chance of success in trading this pair, you need to consider these factors that affect the trading for EUR/USD:
- Sessions: This refers to the time in a day when the pairing can achieve its highest level of volatility and when one is not or traded slighter. This pair is traded at a lesser pace during an Asian trading session but picks up during the United States and European trading sessions. Trade activities slows down during lunch time in Europe and continues once the US trading session starts. Typically, liquidity departs the market starting around 5:00 GMT when trading sessions closes in Europe.
- Political Situations: Any political and economic event can greatly affect this currency pair. Case in point, the recent Brexit and scheduled elections in major European economies has caused the Euro to experience volatility.
- Other factors include Interest Rates, Year-End Economic Reports, and Financial Institution policies.
Trading EUR/USD via CFD
Most traders find the appeal of engaging in CFD (Contract-for-Differences) trading because it allows the capability to trade speculatively on the movement of the forex market even without having to own the physical currencies. Thanks to the large volume and the liquidity of the EUR/USD, it remains as one of the most popular currency pairs in today's forex market.
Why Trade Currency Pairs in eToro?
Other than providing traders with a user-friendly trading platform, the ability to trade on your own schedule, no transaction fees on currency trades, the eToro app gives investors a leverage of x30 for currency pairs. This allow traders to trade $30 for every $1 in their account.
How to Trade EUR/USD Currency Pair on eToro?
- Login or create an account with eToro if you don't have one.
- Click "Discover".
- Select "Currencies".
- Choose "EURUSD".
- Choose "BUY" or "SELL" depending on the how you wish to trade.
- Enter an amount or number of units you wish to trade.
- Set the stop loss, leverage, and take profit parameters.
- Click "Open Trade".
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