Characteristics of the currency pair EURUSD
What is a currency pair?
One of the most famous tools used in the foreign exchange market is currency pairs. A currency pair is two currencies, the price of one expressed through the cost of the other.
We are used to thinking of money as a measure of the value of things and valuing them by the set of products that can be bought with it. One of the essential functions of money is to serve as a measure of the value of things. A second way of relating to the function of world money is to express the value of one country's currency through the currency. This mapping constitutes a currency pair and is the object of trade in the foreign exchange market.
Each currency pair has its designation, which is customary for any country. It is made up of currency codes which usually have a three-letter format.
For example, the U.S. dollar is USD, JPY is the Japanese yen.
The first currency in a currency pair is called the base currency. When transactions are made in the pair, it is the base currency that is sold and bought. The second currency is the quoted currency of the pair; it represents the price of the base currency. So, for example, by purchasing EURUSD, you are buying euros for dollars, and by selling it, you are selling euros to receive American dollars.
From the perspective of an individual country, the quotation of a currency pair containing a national currency can be direct or inverse. In an immediate quote, the value of the foreign currency is expressed in the national currency; in a reverse quotation, it is the opposite.
The notion of national currency loses its meaning in the world currency market, but the U.S. dollar remains the main reserve currency. That is why all currency pairs containing the U.S. Dollar are called direct quotations (do not confuse with direct and reverse quotations). Currency pairs that do not include the U.S. dollar are called cross rates.
The exchange rate of each currency pair consists of two prices - the selling price (bid price), which in exchange slang is called Bid, and the buying price (ask price), which in exchange slang is called Ask.
The Bid is the price at which a trader can sell a currency pair at any given time. The Ask is the price at which a trader can buy.
A trading session is an interval of time during which active market participants trade. For example, the trading session of the London Stock Exchange is from 15:00 local time.
Traders who trade shares and other financial instruments on the respective trading floors must take this information into account for the daily monitoring of their investment portfolios.
But the Forex market, as we know, operates around the clock, so it is customary to divide trading sessions on a geographical basis. Thus, there are Pacific (Wellington, Sydney), Asian (Tokyo, Hong Kong, Singapore), European (Frankfurt, Zurich, Paris and London) and American (New York and Chicago) trading sessions.
This division can tell a trader about the periods of increased activity (volatility) of a particular currency pair. For example, during the American trading session, the volatility of currency pairs with the U.S. dollar (USD) increases, such as EURUSD. In the Asian session - with the Japanese yen (JPY), the single European currency (EUR) is active in the European trading session. The Australian (AUD) and New Zealand (NZD) dollars are most volatile in the Pacific session.
Trading time frames
If you don't decide on trading times, you will never be a stable earning trader! So all the money will go to the other guys. And as you're reading these lines, you're already thinking about it.
Many traders do not understand why there are so many time frames. However, different time frames are appropriate in different situations.
A time frame is the interval of time that is used to construct the elements of a price chart.
A trading period is a time frame for displaying stock quotes (bars, Japanese Candlesticks, Line Chart).
Most traders see the chart as a Japanese candlestick chart. One candlestick shows the change of stock quotes for a selected period in the time frame. For example, if H1 is set, one candlestick contains changes for one hour.
Beginners mistakenly think that a time frame shows the whole chart for the selected period. For example, a daily chart shows the price movement within a day. This is a misconception. The period is the data of one candle.
You can change the time frame in the trading terminal.
The classical variants of trading periods are:
1. Short-term time frames or minute time frames:
- M1 (1M) - minute;
- M5 (5M) - 5M;
- M15 (15M) - 15 minute;
- M30 (30M) - 30-minute.
2. Medium-term time frames or hourly:
- H1 (h) - one hour time frame;
- H4 (4h) - 4 hour time frame.
3. Long-term time frames:
- D1 (D) - daily time frame (daytime);
- W1 (W) - weekly time frame;
- WN (M) - monthly time frame.
The longer is the time frame period, the more visible part of quotes is available for viewing.
1. Smaller time frames allow you to see price movements within a day, but nothing tells you about the global trend. To see the big picture, you need to use large time frames: D, W, M.
The time frames of the first group (M1-M15) are the domain of scalpers, who make lots of small deals to gain quick profits. Here leverage and margin trading are actively used, and work implies an immediate reaction to the slightest price changes.
2. The daily time frame offers many advantages that are not available on lower time frames. If you trade on the daily time frame, a new candle is formed every 24 hours. You have more time to think, plan and execute your trades, so you tend to make fewer mistakes.
As a result, you make better and more informed decisions and improve your results. In addition, your trading becomes more relaxed and relaxed.
When you trade on lower time frames, news events (interest rate news, NFP data, etc.) are essential.
If you trade on higher time frames, the news will have less impact on your trading.
3. H4 is the foremost time frame for analysing medium and relatively long term movements. It is scarce to see the confusion. Usually, all movements are structured. Beginners, as a rule, do not have enough patience because there are only six four-hour candles on a trading day. But those who do make themselves analyse and trade in the medium term will soon see the benefits. The main one is that the most common indicators have been created for charts starting at four o'clock. The signal statistics are getting much better, especially noticeable on the oscillators.
Why do I need to know what a time frame is?
Any tool which is used for technical analysis of the market is aimed at trading under specific conditions. Such a condition is a time frame. Thus, for example, some indicators work effectively only on charts, which have a short period. Others show the qualitative work only on the long time frames.
The trading strategy that is chosen is also of great importance. For example, some trading techniques are suitable for working on charts with a five-minute interval, while others are designed only for long TFs. Besides, there are universal strategies that show excellent results on all time frames.
What is the best timeframe for trading? There is no one straightforward answer to this question. After all, there are traders in the market with different aggressive trades. Someone makes more than 20 deals a day, and someone else won't do so much in a year. Moreover, every trader has different timeframes. So every trader selects the timeframe based on their objectives.
Features of the currency pair EURUSD
The EUR/USD currency pair is one of the most popular pairs among Forex market participants. EUR/USD is considered a major currency pair, as it has the highest trading volume on the market. Such popularity is because the pair includes the two most liquid currencies, which investors often use as reserves. In addition, these two currencies have the highest degree of volatility, allowing traders who choose EUR/USD as their trading instrument to make large profits.
Nevertheless, along with the opportunity to earn high profits, trading EUR/USD involves high risks, as price fluctuations in this trading instrument are difficult to predict, especially for beginners. Even professional forecasts from analysts for this pair are often unreliable.
The difficulty of predicting the behaviour of the pair is since the EUR/USD market is influenced by a large number of fundamental factors that can somehow influence the price of the currency pair.
For example, fluctuations in the U.S. dollar exchange rate are influenced by the state of the economy - its inflation rate and unemployment, its GDP, bonds, the state budget, industry, and more. In addition, exchange rate fluctuations can be influenced by oil prices, gold, and the result of military conflicts in which the U.S. is involved.
The euro is challenging to predict because it is influenced by all of the above events of economic and political nature, which occur in all EU countries, where the euro is an official currency.
How to start trade EURUSD in New Zealand
It is evident that most forex market participants derive their income from currency speculation. Consequently, currency pairs are used as trading tools in the Forex market. Therefore, you can try trading the currency pair EURUSD right now.
To start trading, choose a platform and register online. When registering, you will need to enter your identification details.
Often platforms allow you to try trading in a demo account with virtual money. This will ensure that you trade with no losses and gain experience to become familiar with the many functions of the platform.
But if you're determined to make a live trade, all you have to do is make a minimum deposit and start trading.
Because every currency pair has characteristics that will allow a trader to understand if a particular pair is the most suitable and optimal trading tool, we recommend you to learn about this aspect and start trading! You will be successful!