GBP/USD

The most commonly exchanged currencies involve the US dollar against other currencies. There are common abbreviations that you need to familiarise yourself with. The 4 major currencies are;

The British pound:  GBP/USD, often referred to as "cable". The name "cable"stems from the days when the market was connected by a huge cable that ran under the atlantic, connecting the markets in New York & London).

The Euro/$:  EUR/USD.

Usd/JPY-Japanese yen

USD/CHF: Swiss franc-  also known as "the swissy".

I only trade GBP/$ & EUR/$ on a regular basis. I have traded lots of other exotic pairs & it is those exotic ones where I have made most of my losses. I have found that it is best to specialise. To get a "feel" for a pair. Each has its own characteristics.

If you are new to forex I strongly recommend that you start with these two, GBP/$ & EUR/$

Here are a few more. You do not need to remember them as we will only be specialising in the big four.

• AUD/USD "Aussie"  
• NZD/USD "Kiwi"  
• USD/CAD "Loonie"  

To further complicate matters there are other hybrid pairs known as "crosses"

For example the GBP/JPY is a cross pair. The price is not based directly on the USD, but arrived at by calculating the value of the GBP/$ & the $/JPY. As a result of which this particular cross pair is highly volatile (I have lost 50 pips in seconds on too many occasions to mention). The spread** is also up to 4 times bigger than the majors.

Do not touch this pair: GBP/YEN with a barge pole

At least until you have lots of experience, even now I avoid it like the plague ! It is easier, less stressful, less volatile to stick with cable & the EUR. Both generally behave in a more predictable fashion.

For a more detailed explanation of some of the terminology have a look at

http://en.wikipedia.org/wiki/Currency_pair

As I said earlier, the 4 majors are the only currency pairs that you need to be concerned with at this stage, Ignore internet chat rooms where someone is extolling the virtues of the Icelandic Krona/against the Swahili Dollar or other exotic nonsense. You 1st need to learn the basics. In actual fact I now only specialise in Cable & the Eur/$.

I do not trade the CHF. I only use it for confirmation/correlation *

*Correlation refers to how one currency pair reacts with another. 80+% of the time when the CHF is going up, the Euro is going down. Therefore if I am looking to place a sell order- go short - the Euro, I want to see that the Chf is going in the opposite direction. If not I need to investigate further before entering a trade.

 Forex Trade Plan