Currency pairs are one of the basic forex trading strategies. The benefit of using currency pairs is that the investor can gain advantage from diversifying their risks by betting on two different economies. This adds a global perspective to the investor’s portfolio. Because of this, currency pairs are considered to be a global asset, so they can be traded in different pairs any hour of the day because of the different time zones. So this gives the binary options trader more opportunities to trade any hour of the day. This is ideal for those traders who cannot access their economy’s market during their working hours.
This is an incredibly dynamic option for traders to get involved in, because currency pairs are in constant motion. This endless change in valuations is the very core of the options market. After the advent of sixty second binary options, along with the option to trade for longer maturities, the currency pair option is an excellent tool for swing traders and scalpers who look for trading opportunities. That’s what makes currency pair an ideal option for using in a variety of strategy and maturity.
The basic markets for commodities work when you exchange one item of value for another item of value, which is how money came into the equation as a universal method of commodity exchange. However, with currency pair, you purchase one currency with another. You must sell one currency to buy another. In order to do that, currency pairs came into existence. For example, the Euro with USD is a currency pair. In every currency pair, the first currency acts as the commodity and the second currency is that which you pay the commodity with. So when you are buying a Euro with USD currency pair, you are buying Euros and paying them with American dollars. It doesn’t matter what currency your trading account works with. Your trading account can work with Pounds or Canadian Dollars to Japanese Yen, it wouldn’t matter, because your broker will take your account capital and convert it into American Dollars. It then uses it to buy Euros. Any kind of trade in the forex market must be done with US dollars, since it is a global currency and acts as the axis to all the forex transactions. No matter what currency pair you want to long or short, it must be converted to US Dollars. The transaction doesn’t have any hassle though, since everything is done at the click of a button.
Now here’s how you can long or short a currency pair. In a forex market, you can sell a currency pair before you purchase it. It works like this. Suppose you expect that the price of the Euro is going to go down. So you borrow a currency pair for a few weeks and sell it immediately for say $150. Suppose you were right and the price of the Euro actually did plummet. What you do is, you buy the Euro now for $100 and return it to me. You make a $50 profit
You long your currency pair whenever you are buying it and you are shorting our currency pair when you are selling. Don’t be fooled by these misleading terms, these have nothing to do with maturity. The only reason they are called long and short is because it takes a ‘longer’ time for price to go up and a ‘shorter’ time for price to go down. That’s because price goes up because of greed and it goes down because of fear, and fear is stronger than greed. So when you say you’ve got a long position, it typically implies that that the price rise will take a long time and vice versa with short. So when we say we are longing a Euro and US Dollar currency pair, it means we are buying it.
So that’s pretty much the basics of currency pairs. It’s an amazing investment tool to diversify your portfolios risk, and is versatile enough to use for a variety of strategies. Fun fact, the most common currency pair is Euro-USD, where 70% of forex trade is centered on this particular currency pair, while a fan favorite of personal forex traders is British pound with Japanese yen. We hope this article was informative and we wish you happy trading.