Phantom Trading’s 4-Part Beginner’s Guide To Forex Trading
How Do Currency Pairings Work?
How To Read A Currency Pair Quote
Reading a currency pair quote is actually quite simple once you learn how to do it! Forex pairs have two components to them that you need to understand, the base currency, and the quote currency.
The base currency is the currency we are using as our primary currency. For example, if we are trading the Euro against the US Dollar, our base currency would be the Euro.
The quote currency or counter currency is the currency we are quoting against the base currency. If we’re trading the Euro against the US Dollar, our quote currency is the US Dollar.
Putting The Currency Quote Together
To put a currency quote together, we simply take any currency to use as a base and pair it with another currency to use as a quote, hence the name currency “pairs”. So, as an example if USD/CAD (US Dollar against the Canadian Dollar) is trading at 1.26000, it means we can exchange one US Dollar for 1.26 Canadian Dollars which is like taking a long position (buying USD against the CAD).
USD/CAD or CAD/USD?
Now you’re probably wondering, is there such a thing as CAD/USD? The answer is yes, and no. Generally, popularly traded currency pairs come in pairings that are paired in a specific order, but that doesn’t mean we can’t buy CAD against USD, it’s as simple as taking a short sell position on USD/CAD! How does that work? We’re effectively selling USD against the CAD which is the same as buying CAD against USD! Make sense?
Major pairs are the FX pairs with the most trading volume in the market and have US Dollars as a part of the base or quote currency in the pair. These are by far the most popular instruments to trade in the forex markets and within Phantom Trading for a couple of reasons. The primary reason is the high liquidity of these pairs, as well as the low spread between the bid and ask prices, meaning it’s easy to get in and out of positions in the market and we’re not paying a huge premium to the broker in spreads. If none of that last sentence makes any sense, don’t worry, I’ll cover bid, ask, and spreads in the How To Start Forex Trading part of this series!
Either way, if you’re completely new to trading forex and intend to join our community, I highly suggest sticking to EUR/USD, GBP/USD, and or AUD/USD as they are the most commonly traded and covered pairs by the Phantom Trading team. Major FX pairs consist of currencies that are part of the largest and most developed economies in the world which is why they trade at the highest volume. When we talk about major currency pairings they pretty much exclusively have a major developed economy’s currency as well as the US dollar in their base and quote currency.
Major Currency Pairs Chart
|Currency Pair||Base Currency||Quote Currency||Nicknames|
|EUR/USD||Euro (€)||US Dollar ($)||Euro Dollar / EU|
|USD/JPY||US Dollar ($)||Japanese Yen (¥)||Dollar Yen / UJ|
|GBP/USD||Pound Sterling (£)||US Dollar ($)||Pound Dollar / GU|
|AUD/USD||Australian Dollar ($)||US Dollar ($)||Aussie Dollar / AU|
|USD/CAD||US Dollar ($)||Canadian Dollar ($)||Dollar CAD|
|USD/CHF||US Dollar ($)||Swiss Franc (CHF)||Dollar Swiss|
|NZD/USD||New Zealand Dollar ($)||US Dollar ($)||Kiwi / NU|
Next, we have the minor pairs which are made up of base and quote currencies that have decent trading volume but are still traded less than the major pairs. While certain minor pairs actually have pretty good price action, you’ll pay a premium in spreads as they’re usually a bit higher than their major pair counterparts. Nothing wrong with that if you trade the Asia session and are looking for volatility in the Yen or Australian Dollar pairs. Within Phantom Trading we have members of the community that trade minor pairs with no issue and who prefer it over the major pairs because they can sometimes be cleaner and less heavily manipulated. These FX pairs typically consist of currencies that are part of major economies but aren’t quite big enough and don’t have the US dollar in their base or quote currency. When we think of minor pairs, we think of pairs that have the Euro, Japanese Yen, Great British Pound, Swiss Franc, Canadian Dollar, Australian Dollar, or New Zealand Dollar as a part of their base or quote currency.
Minor Currency Pairs Chart
|Currency Pair||Base Currency||Quote Currency||Nickname|
|EUR/CHF||Euro (€)||Swiss Franc (CHF)||Euro Swiss|
|EUR/JPY||Euro (€)||Japanese Yen (¥)||Euro Yen / EJ|
|EUR/CAD||Euro (€)||Canadian Dollar ($)||Euro CAD|
|EUR/AUD||Euro (€)||Australian Dollar ($)||Euro Aussie / EA|
|EUR/NZD||Euro (€)||New Zealand Dollar ($)||Euro NZD|
|EUR/GBP||Euro (€)||Pound Sterling (£)||Euro Pound / EG|
|GBP/JPY||Pound Sterling (£)||Japanese Yen (¥)||Pound Yen / GJ|
|GBP/AUD||Pound Sterling (£)||Australian Dollar ($)||Pound Aussie / GA|
|GBP/CAD||Pound Sterling (£)||Canadian Dollar ($)||Pound CAD|
|GBP/CHF||Pound Sterling (£)||Swiss Franc (CHF)||Pound Swiss|
|CAD/JPY||Canadian Dollar ($)||Japanese Yen (¥)||CAD Yen / CJ|
|AUD/JPY||Australian Dollar ($)||Japanese Yen (¥)||Aussie Yen / AJ|
|NZD/JPY||New Zealand Dollar ($)||Japanese Yen (¥)||NZD Yen / NJ|
|CHF/JPY||Swiss Franc (CHF)||Japanese Yen (¥)||Swiss Yen|
With exotic FX pairs, while we won’t tell you not to trade them (especially if you’re already familiar with them and trade them actively) we don’t suggest starting with them when starting out because you’ll pay the most premium in spreads on these types of pairs, and they’re not as easy to learn on as the majors or minors. These pairs generally have low volume and therefore can have unclean price action (which can be difficult to read) and high volatility due to low liquidity in the market. Exotic pairs typically consist of currencies from two emerging economies which is why there is low trading volume and liquidity in these markets.
Precious Metals and Commodity Markets
Next, we have precious metals which consist of things like spot gold or spot silver, and major commodities ranging from the energy sector (crude oil, natural gas), or food commodities (wheat, corn, coffee, etc).
While we won’t cover food commodities or futures since they’re so rarely traded in Phantom Trading, you’ll find a lot of Phantom team members and Phantom members who trade spot gold (XAUUSD) due to its high volatility and low commissions. The thing to note about trading gold is that with its high volatility comes added risk, especially when trading on the lower timeframes. Personally, I’ve seen slight slippage from the high volatility that gold has in the New York session on normal days without any high-impact news events, so we think it’s important to practice trading this instrument in simulation or demo to understand how it moves before trading it live with real capital.
Indices, Stocks & Equities, ETFs, and Futures Markets
Moving on, we have Indices, Stocks & Equities, ETFs, and Futures Markets. These are some of our favorite asset classes to day trade because of their intraday volatility and their ability to be used as investment vehicles, but that topic deserves an article of its own. No matter what market you want to participate in, you have the New York Stock Exchange, London Stock Exchange, Frankfurt Stock Exchange, or even Tokyo Stock Exchange all at your fingertips with most FX Brokers via MT4/MT5 or C-Trader.
Indices come in all shapes and sizes, ranging from the most widely known S&P 500 (US500), Dow Jones (US30) to the Nasdaq 100 (US100), all the way to the FTSE, DAX, or NIKKEI Index. These are among some of the most heavily traded index funds in the world and therefore have high liquidity and generally have pretty good volatility making them great instruments for swing and day-trading.
Stocks & Equities (CFDs)
Stocks and equities are typically available to trade as CFDs (contract-for-difference) products at most major FX brokers. This is a bit of a newer offering as brokers have gotten better at providing access to these instruments in the last 5 years. Think of any major blue-chip stock that is traded in the US Stock market and there is a good chance you can trade it through your FX broker too now! While I personally don’t trade stocks and equities through my FX broker, I do like to position trade certain stocks through my stockbroker. At Phantom, we have a handful of people that day trade stocks, but our primary focus is day trading currencies, gold, and indices. The good news is, if you do trade stocks already and want to apply the Phantom Trading methodology to it, you’re in luck because it works! If you want a good stockbroker and trading platform, I personally use TD Ameritrade’s Thinkorswim platform which is available on PC and Mac.
The futures market is essentially another market in which investors and institutions can buy and sell futures contracts for a particular commodity or equity to be delivered at a predetermined date in the future. You can think of this as locking in the current price of a specific stock, equity, or commodity that will be delivered at a future date, hence the name. This asset class is considered an exchange-traded derivative.
ETFs (Exchange Traded Funds)
Next we have exchange-traded funds which are similar to mutual funds in that they consist of a group of stocks in a particular industry, commodity, or index, but can be freely bought and sold through a stock exchange. The most common ETFs are those that track the major indices and things like oil or natural gas, but they can be as specific as an ETF that’s comprised of small mining companies.
Last but not least we have cryptocurrencies, which is easily one of the hottest yet least understood markets to have emerged in the last two decades. While the majority of us on the Phantom team don’t actively trade cryptocurrencies, some of us do use it as longshot investment vehicles. Cryptocurrencies are inherently risky just like any other market, but this is amplified by the volatility and manipulation that happens in these markets too. Within Phantom Trading, we do have a handful of people who take intraday positions on major “blue-chip” cryptocurrencies, even on funded and live trading accounts. The point is, there is opportunity in every market, otherwise they wouldn’t exist!
As for the major cryptocurrencies, there are really only a handful of “blue-chip” currencies that most major FX brokers and prop firms offer. They include Bitcoin, Etherium, and Litecoin since they have the largest cryptocurrency market capitalizations. Some runner ups include Tether (a stablecoin), and BNB and ADA.
Alt-coins & Alt-Tokens
As for alt-coins and tokens this list may be different depending on who you ask but the way I’ve always defined them as is simply any coin other than Bitcoin. Now with that being said, there are major alt-coins, mid-cap alt-coins and of course crap alt-coins that are more often than not, pump and dump schemes. The point is, very rarely do exchanges offer these products unless the exchange specializes in cryptos. In fact, most new alt-coins with little traction or market cap can only be purchased and sold through decentralized exchanges (DEXs).
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Robert Castillo – Currency & Commodities Trader,
Financial Analyst, Writer & Editor.
Robert is a funded trader based out of Toronto, Canada, and has been trading currencies, commodities, stocks, and cryptocurrencies for over 7 years. Outside of trading he enjoys producing music, mixed martial arts, and riding his motorcycle in the summer.