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B. Currency Pair Types

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The most traded pairs of currencies in the world are called the Majors. The majors are those currency pairs that are comprised of the most important currency in the global markets - the U.S. dollar (USD) - crossed with one of seven other globally significant currencies - the euro (EUR), the Great British pound (GBP), the Swiss franc (CHF), the Japanese yen (JPY), the Canadian dollar (CAD), the Australian dollar (AUD) and the New Zealand dollar (NZD). They constitute %85 of the foreign exchange market with the high market liquidity. The exotic currency pairs are the currency pairs that are comprised of the most important currency in the global markets - the U.S. dollar (USD) - crossed with any currency that is not considered a major currency (USD/TRY,USD/ZAR,USD/MXN…). Exotic currencies are usually lightly traded and have large bid/ask spreads. The currency pairs that do not involve the US dollar are called cross currency pairs.(GBP/JPY,EUR/GBP,EUR/CAD).

The major currency pairs also have nicknames that many traders use when they are referring to them.. The GBP/USD pairing is known by traders as Cable, which has its origins from the time when a communications cable under the Atlantic Ocean synchronized the GBP/USD quote between the London and New York markets. The following nicknames are common: Euro for EUR/USD, Chunnel for EUR/GBP, Loonie for USD/CAD, Aussie for AUD/USD, Yen for USD/JPY, and Kiwi for the New Zealand Dollar NZD/USD pairing.

Most currency pairs were quoted to 4 decimal places for spot transactions and up to 6 decimal places for forward outrights or swaps. The fourth decimal place is usually referred to as a "pip".(1/10000) The spread is the distance between the price at which you can buy a currency pair and the price at which you can sell a currency pair at any given moment. The price at which you can buy a currency pair (the "Ask" price), is always higher than the price at which you can sell a currency pair (the "Bid" price).

A market based exchange rate will change whenever the values of either of the two component currencies change. A currency will tend to become more valuable whenever demand for it is greater than the available supply. It will become less valuable whenever demand is less than available supply this does not mean people no longer wants money, it just means they prefer holding their wealth in some other form, possibly another currency.