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A position is a trade which is currently in progress. In trading, you can get long positions and short positions: Long position: this is when the trader has bought a currency with the expectation that it will increase. Once the currency is sold back, the long position is considered closed. Short position: this is when the trader has sold a currency with the expectation that it will decrease. Once the currency is bought back, the short position is considered closed.
While you can trade almost any currency pair in theory, there are certain pairs that are consistently the most traded. These are called Major pairs (it’s in the name) – they make up 80% of the entire trading volume in the forex market. These major pairs are associated with stable economies and therefore offer low volatility and high liquidity. Example of major pairs include the aforementioned EUR/USD, the USD/JPY (the US Dollar and the Japanese Yen), GBP/USD (British Pound and the US Dollar) and the USD/CHF (the US Dollar and the Swiss Franc). Another characteristics of major currency pairs is that there’s a smaller risk of them getting manipulated and the spreads are usually pretty small.
Cross currency pairs are also known as Crosses, and are pairs that do not include the US Dollar – which immediately makes them more volatile and less liquid than Majors. While the US Dollar features in every major pair, Crosses are concerned with more ‘minor’ currencies like the EUR, the GBP and so forth. Popular pairs in the Crosses family include the EUR/GBP, the GBP/JPY and the EUR/JPY.
Exotic pairs – or just Exotics for short – are those currencies that come from smaller economies and the so-called emerging markets. They’re usually paired up with a major currency. Because these offer the least amount of liquidity and the highest volatility of the three brackets, they are regarded as the riskiest to trade. Examples include USD/MXN, GBP/NOK and CHF/NOK.
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