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  • The EUR/USD currency pair, how do you trade it? – TIPS & TRICKS
  • The EUR/USD currency pair, how do you trade it? – TIPS & TRICKS

The EUR/USD currency pair, how do you trade it? – TIPS & TRICKS

EUR/USD, what does it mean?

The Euro (EUR) and the US dollar (USD) are widely used currencies worldwide. Both currencies together make up a large part of the total (international) transactions that are carried out daily. It is therefore not surprising that the EUR/USD combination is popular among traders and investors. For example, the fact that EUR/USD is the most liquid currency pair in the world.

In addition, there are many companies worldwide that come into contact with both currencies on a daily basis. For example, think of multinational companies that have offices in both the Netherlands and the United States. These companies are partly responsible for the large number of transactions that are carried out.

The popularity of EUR/USD is not only due to the fact that companies regularly conduct transactions in this currency. Another reason is the fact that there is a lot of information available about both the euro and the dollar. You could say that the motivations behind both currencies are quite transparent and explainable. In daily practice, it appears that many stock market traders anticipate the transparency of the currency pair. The number of people who trade in EUR/USD is very high and this causes high volatility within the rate. All in all, EUR/USD is an interesting product for both novice and advanced investors and traders who would like to trade in currencies (Forex) .

The History of EUR/USD

Anyone who examines the popularity of EUR/USD might assume that both currencies have been around for ages. In practice, however, you will be disappointed. The euro only made its physical debut in 1999. This does not say everything: the euro actually existed at the beginning of the twentieth century, but only digitally. At the beginning of the twentieth century, it was therefore not yet possible to own physical euro notes or coins. Since the end of the twentieth century, it did not take long for the euro to prove itself to be a proven and popular currency.

The dollar has been around for a while. The dollar was introduced in 1792, when the American Constitution was designed. Since then, the dollar has proven to be a (relatively) stable currency that has managed to gain a lot of popularity over the years. For many investors worldwide, the dollar is the absolute standard.

The euro has had its share of undesirable blows in the past. The main one was triggered by the credit crisis of 2008. This started with the bankruptcy of Lehman Brothers. Between 2008 and 2014, the euro suffered severe consequences. A historic decline in the value of the euro was central to this. A crisis followed in Europe, as well as in the United States. Since then, there have been a number of significant ‘swings’ in the EUR/USD rate. These were all the result of economic or political circumstances.

The factors that influence the currency pair

Below you will find the role of both currencies within the EUR/USD currency pair.

The role of the euro

As an investor, you are looking for handles that can tell you something about the euro. In general, the European Central Bank (ECB) is one of the biggest factors when it comes to the euro. Many investors will therefore keep a close eye on the news about the ECB. For example, the ECB regularly makes statements that say something about the future of the euro.

The ECB produces a monthly report on interest rates and economic outlook. Investors often use this as a reference when making decisions about their (potential) EUR/USD position(s).

In addition, there are many other factors that play a role. The ECB is not all-determining in that sense. Employment figures also play a role, for example, when it comes to the movement of EUR/USD.

The role of the dollar

The dollar is also subject to a central bank having a great deal of influence on its rate. This is the US Federal Reserve (Fed.). The Fed. publishes relevant figures relating to the US economy eight times a year. Here too, the Fed. is not the be-all and end-all. Other figures and developments will always play an important additional role.

How to trade EUR/USD?

The easiest way to trade EUR/USD is by using  CFDs . CFDs are leveraged products that are based on an underlying instrument. They are a form of derivatives. This means that you do not have to physically purchase the currency itself. An advantage of CFDs is that you can go both long and short. You can then speculate on both a price increase and a price decrease. In addition,  leverage offers  the opportunity to increase your profits. However, keep in mind that leverage can also increase your losses. CFDs therefore do entail risks. For most Forex investors, the CFD remains an ideal solution. 

Would you like to start investing in Forex via CFDs?  Then compare all Forex brokers here .

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