Characteristics of the currency pair EURUSD
EURUSD is the most popular currency pair, which consists of two of the world's largest currencies. USD and EUR are the most actively traded currencies in the world, covering more than half of the total trading volume in the foreign exchange market.
The currency pair indicates how many US dollars it takes to buy one euro. For example, if the pair is trading at 1.34, this means that the buy price of 1 EUR equals 1.34 USD.
What are currency pairs?
A currency pair is a trading tool in the market, presented in the form of two currencies, the price of the first of which is expressed through the price of the second.
Each currency pair on the market has its own designation, which is generally accepted for any country. It is formed from currency codes, which usually have a format consisting of three Latin letters. For example JPY - Japanese yen, EUR - Euro, USD - US dollar, CHF - Swiss franc.
The name of a currency pair consists of two currency codes, written together or separated by a slash - "/".
The first currency in a pair is called the base currency. When performing transactions with a pair, it is the pair that is bought and sold. The second currency is the quoted currency of the pair, and the price of the base is expressed in it. That is, buying a pair of EURUSD, you are actually buying euros for dollars, and selling it, you are selling euros in order to get American dollars.
The exchange rate of each pair consists of two prices - the sale price, which is called Bid in the exchange slang, and the purchase price, which is called Ask in the exchange slang.
Bid is the price at which a trader can sell a currency pair at any moment of time, Ask is the price at which it is possible to buy.
Let's take for example the EURUSD pair rate: 1.3053 / 1.3057. The first digit in the quote is the bid price at which your counterparties are ready to buy this pair, that is, you can sell at this price at the moment. The second number is the ask price, at which there are people willing to sell, and if you want to buy, this is your purchase price. For example, if you want to buy 1000 EUR, you will need 1305 USD, and by selling 1000 EUR, you will receive 1302 USD.
The exchange rate is influenced by its popularity and quantity in the foreign exchange market, the actions of central banks and unforeseen circumstances - crises, disasters, wars.
Currency is also a commodity that is constantly bought and sold, therefore the laws of the market apply to it. If the demand for a currency increases, so does its value. If the number of transactions with national goods or the size of investments decreases, the rate decreases. The fluctuations in demand are influenced by the cost of resources, interstate sanctions, and socio-economic factors within the country.
There are two main methods for setting exchange rates:
|Floating exchange rate||It assumes that the exchange rate of a currency is formed under the influence of a number of economic factors that determine supply and demand for it, and can vary within any limits, without legislative regulation.||The supply and demand of each specific currency depends on the stability of the national economic system; inflation rate; the degree of cooperation and specialization of production; the competitiveness of the national producer in the world market; the state of the balance of payments of the state, etc.|
|Fixed exchange rate||This is a rate at which the ratio of national and foreign currencies remains unchanged, despite the general economic factors of the development of the state and world currency markets.||Fixing the exchange rate against one currency is most common in countries with underdeveloped economies and weakened currencies.|
A trading session is a part of the time during which orders are announced and processed, as well as transactions with securities and financial instruments.
Periods of transactions or sessions also have their own characteristics, taking into account that the trader can determine at what time of the day it is most profitable and comfortable to carry out the planned currency transactions.
Characteristics and types of sessions on the market
There are 4 types of trading sessions on the international market, taking into account the peculiarities of each of which, the market participant has the opportunity to choose the best option that allows trading in the most comfortable rhythm, while increasing the chances of a positive result of planned foreign exchange transactions.
|Pacific session||It is characterized by calmness, and therefore it is optimal for traders who prefer a measured trading pace. They are distinguished by high volatility in this period. The situation during this session is fairly stable and without "surprises".|
|Asian session||It is not particularly active, but during this period you can hit a good jackpot if the yen is the preferred trading instrument for the trader.|
|European session||Active enough to trade successfully during this period, a serious professional level and utmost care is required.|
|American session||The peak of trading activity, and the period with an active increase in the level of risk, respectively, however, when conducting aggressive trading, this period is almost ideal.|
Before starting to carry out transactions on the market, you should evaluate the strengths and opportunities and, taking into account the characteristic features of the sessions, choose the optimal period for entering the market.
Transactions on the international market are carried out by traders in accordance with the chosen strategic trading model, which is selected individually for each. During the existence of the market, quite a few effective trading strategies have been developed, which are successfully used by traders to this day, professionals also quite often use personal strategic developments.
A trader should choose the most comfortable trading tool that matches the trading strategy and professional level of the market participant, in this case, one should focus on personal preferences in foreign exchange transactions: some traders trade aggressively (this trading style is accompanied by the highest level of risk), others are inclined to a more calm conduct of foreign exchange transactions, thus receiving a smaller income, but more stable and less risky.
A trading strategy is a clearly formulated set of rules and parameters, the implementation of which allows a trader to open a deal. To trade the market, investors and traders use different types of strategies depending on the trading time, the indicators they use, the level of risk or trend.
Different strategies are divided into types, based on the time spent by the investor or trader:
They are very rare in the Forex market, because they are more targeted at large market participants such as investment funds. Trading according to this strategy, deals are opened for a period of 1-2 years and in this case it is very difficult to predict what will happen to the market in the future.
Designed to hold a position for a period of 1-3 days to 2-3 weeks. To trade using this strategy, you need a rather large deposit that can withstand significant drawdowns. This strategy requires a certain amount of endurance and patience, but the result will be appropriate.
They imply trading within one day, without transferring transactions to another day. This strategy is most popular with novice traders. This is the most risky of the listed strategies, because during the day there can be a lot of volatility, but it allows the trader to watch the price movement. It is not uncommon for such strategies to turn into medium-term strategies if the investor or trader did not manage to close the deal in time.
The strategy also includes scalping - this strategy with a high degree of risk involves opening many transactions, preferably for a minimum time, in order to obtain 3-5 points of profit, after which the transaction is closed.
Timeframes are a trading period during which quotes are grouped and the elements of the price chart are built (candles, bars, lines, etc.) Timeframes in trading are divided by duration: minute, hourly, daily, weekly, etc.
If experienced traders and investors know how to navigate their diversity well, then it is very difficult for beginners to do this, they often get lost and do not know what time intervals to choose and why they are needed at all.
The main danger that awaits beginners is that the choice of a timeframe on the stock exchange cannot be treated as a magic pill that should bring a lot of profit at once. This is fundamentally wrong.
It is necessary to try different time intervals. But the point is to find a trading style that suits you, in which your trading will be comfortable, will match your character and temperament. You can’t get hung up on only one or two timeframes. Otherwise, you will miss out on large chunks of quite valuable information.
What you need to pay attention to when choosing a timeframe:
- The size of the deposit. With a small starting capital, you will not be able to trade above the h4 range.
- Time spent. If you combine trading with your main job, you will not be able to spend more than 2 hours a day in the terminal.
- Type of trading or indicator system. Each trading strategy has its own recommended timeframes.
This is how the timeframe designations look like, which can be found on the trading floor:
- M1 - 1 minute
- M5 - 5 minutes
- M15 - 15 minutes
- M30 - 30 minutes
- H1 - 1 hour
- H4 - 4 hours
- D1 - 1 day
- W1 - 1 week
It is worthwhile to consciously approach the choice of a time period convenient for each person, because the trader's profit will depend on this.
Features of the EURUSD currency pair
Each pair on the market has its own "character", its own trading characteristics. So, for example, the most popular pair is EUR/USD. It is only at first glance so simple and convenient, but in fact, a trader needs some experience to trade it. Since this currency pair is in great demand among market participants, its behavior is far from always predictable: the pair can change the direction of its trend several times a day. However, if you like to trade using a scalping strategy, then this pair will suit you.
Since the euro / dollar currency pair is the most recognized among traders all over the world, it follows from this that the largest money turnover in the market passes precisely for this currency pair. EUR/USD reacts significantly to important macroeconomic indicators that are displayed in the calendar of market events.
In terms of volatility, the euro / dollar currency pair is inferior to such sprinters (currency pairs requiring active action) such as GBP / USD or USD / JPY, which can move at 200-300 points a day. On average, the range that this financial instrument overcomes per day is 70-100 points. Of course, if we take into account the fact that a trading day can be full of many important fundamental events, then EUR/USD can go up to 200 points, but when trading on the market, this situation is extremely rare.
Active movement on the price charts of the euro / dollar pair begins during the European and American trading sessions.
One of the main fundamental factors that has a great influence on the Euro Dollar instrument is the gross domestic product of the Eurozone countries.
Another interesting factor influencing the euro / dollar currency pair is the effect of cross rates. For example, the release of important news in various countries that lead to a fall. Pairs EUR/CHF, EUR/AUD, and others can lead to depreciation of EUR/USD. Such patterns can be observed at all non-dollar rates in which the base currency is Euro-EUR.
And the last main indicator that affects the change in the exchange rate of the euro to the dollar is political and financial instability. This indicator can be provoked by the governments of the Eurozone countries.
How to start trading EURUSD in India
To trade, traders use trading platforms provided by online brokers. These are software that provide online access to the exchange. On such sites, you can track the price movement of the selected asset in real time, which makes trading even more convenient.
In order to use the platform, you need to go through a simple registration process, the trader needs to indicate his name, surname, email address and come up with a password, then confirm the registration and go to his personal account.
After such simple steps, you can move on. If a trader or investor is just new to trading, then first they should pay attention to a training account, which displays all assets, just like a real account, but at the same time already has a certain amount of funds provided by an online broker. This amount is fictitious funds, which helps to reduce the risks of losing their own money, a trader while learning and honing their skills.
After the trader feels confident in the market, he can switch to a real account, for this he needs to replenish it by making a deposit. The amount of the minimum deposit depends on the online broker you choose. Usually, it varies widely from $ 5 to $ 1000.
You should not start trading with large amounts, successful traders will not be in a hurry and will start small, gradually increasing the deposit with the help of transactions, this is the secret of success.