In trading currencies you don’t just buy the yen. You buy the yen with US dollars. Or you sell the euro for US dollars. Or maybe you sell the yen for euros. This trading of one currency for another is the Forex pair you choose. That’s why you never just see a chart for one currency or another, it’s always versus another currency.
Even if you’re not interested in trading currencies (though adding another option to your portfolio could reduce risk but reducing the number of related investments) you should have a basic understanding that different currencies are influenced more by different events, just like how different stocks will react to a major storm or interest rate change differently. Also important is to know how your investments react to a currency change. If the US dollar falls does that actually hurt your investments? It may if it buys a lot of raw materials from oversea, though if it does a lot of exporting it may be a good thing. Following the currency markets may help your timing on that stock you’ve been following.
Here are some Forex pairs with some real general trends associated with them:
International trade currencies: These currencies are influenced by changes in demand for commodities and finished goods. A few of them (CAD, AUD, NZD) are often referred to as the “commodity currencies.”
GBP/USD
AUD/USD
NZD/USD
USD/CAD
USD/JPY
Capital flow currencies: These currencies are swayed by changes in demand for investments including equities, bonds and interest bearing investments. You will notice that there are some currencies are in both categories. It is impossible to strictly say that one forex pair falls only in one category and no other category.
EUR/USD
GBP/USD
USD/CHF
USD/JPY
I know, it’s more charts to consider, but if it just adds 1% to your personal CAGR, imagine how much sooner you’ll be retiring. Or don’t imagine calculate it.
%RELATEDPOSTS%
Related posts:
Really good read, nice to read a good blog at last!
I think all in all the forex market is easily the fastest growing in the world, obviously not by the standard of capital but by new investors. Indeed, its a great time to be a trader.