What is EUR/CAD Forex Trading?
EUR/CAD is a minor pair in the forex trading world. As a general rule, any currency that isn’t traded against the US Dollar will be regarded as a minor. That means forex pairs featuring USD, such as EUR/USD, are regarded as majors. To be more specific, minor pairs are those that have lower trading volumes than the seven majors.
This doesn’t mean EUR/CAD isn’t an active forex trading market. It is. The Euro is the second most traded currency in the world (32% of all daily trades), while the Canadian Dollar is sixth (5% of all daily trades). Therefore, even though this pair isn’t as popular as those containing USD, there’s more than enough liquidity for retail customers (i.e. individual traders).
That’s great, but what does EUR/CAD forex trading actually mean? Like all forex pairs, EUR/CAD compares the value of one currency against the other. In this instance, you’re comparing the base currency (EUR) against the quote currency (CAD). This comparison allows you to establish the value of the Euro. In other words, EUR/CAD asks the question: how much CAD does it take to buy €1?
Even if you’re new to forex trading, you’ve probably asked yourself a similar question before going on a foreign holiday. Standing at the bureau de change, you want to know how much foreign currency you’ll receive in exchange for your native currency. That, essentially, is what forex trading is but on a bigger scale.
EUR/CAD Live Chart
The History of EUR/CAD
The EUR to CAD exchange rate goes back to 1999. Even though there were trade deals between European countries and Canada long before 1999, this is when the Euro was launched.
As we’ve outlined in the following sections, the Euro unified members of the European Union under a single currency. In turn, it became the base currency for trade deals between Europe and the rest of the world.
The first EUR/CAD price was €1/CA$1.58. It climbed as high as €1/CA$1.62 in December 2004 and dropped to €1/CA$1.28 in 2012. However, in general, it’s remained a fairly stable currency pair.
As of 2021, the average EUR/CAD price was €1/CA$1.47. For you, that’s great news. There’s just enough volatility (ups and downs) to create forex trading opportunities. However, there’s not so much that the swings would be unbearable.
Factors that influences EUR/CAD
EUR/CAD forex trading is about assessing a multitude of social, political, economic and cultural events to predict which way the currencies will swing. The reason you need to monitor what’s happening in these areas is that the value of a currency is tied to a country’s economic and political strength. If GDP is high, unemployment is low and a country has plenty of links with other major economies, things are going well and its currency will be strong.
If the reverse is true, the currency will be weak. Therefore, as a forex trader, you need to look at what’s happening in Europe and Canada before you open a trade. Only by doing this can you start to form an opinion on whether EUR/CAD will increase or decrease in value.
It’s also important to remember that Europe and Canada have allies. As two of the biggest political forces in the world, these countries share common values and trade links with the US, the UK and China. This means you have to consider what’s happening elsewhere in the world and how it might affect EUR/CAD.
Role of the Euro
The Euro created a united European Union in the sense that it brought 19 of the block’s 27 members together under a single currency. Doing this made the Euro the EU’s official currency and one that’s used by more than 340 million people each day.
Moreover, the Euro created the single market i.e. Europe forges trade deals as a single block. That means a deal between the EU and Canada, for example, applies to every country within the European Union.
It’s the same for fiscal policies. Thanks to the Euro, interest rates are universally applied to all EU members states by the European Central Bank. In short, the Euro united European countries under a single monetary and economic system.
Role of the Canadian Dollar
Canada used the pound sterling for many years due to its status as a British colony. However, when the Bank of Montreal issued dollar banknotes in 1817, things began to change.
Quebec quickly became an advocate for using the dollar, while the Atlantic colonies wanted to keep the pound. Eventually, the dollar won and, in January 1858, it became the official currency of Canada.
Although some provinces didn’t adopt it straight away, the 1871 Uniform Currency Act made the dollar mandatory in all territories. The gold standard was used to set the value of CAD until 1933, after which it became a floating currency.
Today, the Canadian dollar is a unit of value exchange (used to pay for goods and services) and a reflection of economic strength.
You need a strategy to buy and sell EUR/CAD. This strategy requires you to analyse certain variables and understand your risk.
When to Buy and Sell EUR/CAD
The point at which you open and close a EUR/CAD trade should be based on logic and reasoning. Although there will be some emotion or gut instinct, every decision should have a factual basis. Because of this, you need to assess subjective and objective data.
Subjective data comes from news stories, expert tips, forecasts and snippets of information you can glean from social media. In other words, anything that gives you a feel for what’s going on in Europe and Canada is important.
Objective data comes from price charts, technical indicators and forecasts. Anything that uses empirical data to highlight past trends or model future ones can be used as objective data. As a EUR/CAD forex trader, you need to use a combination of subjective and objective data to decide when to open and close trades.
How to Trade EUR/CAD
Forex trading is great because you can speculate on the value of a pair increase or decrease. You can’t do this with other trading strategies, such as buying stocks. Therefore, when you’re deciding whether or not to open a trade, you’ll have two choices:
Buying is also known as going long. It means you believe the value of a currency pair will increase. For example, if you execute a buy order for EUR/CAD, you’re saying that you think the Canadian Dollar will appreciate against the Euro.
Selling is also known as going short. It means you believe the value of a currency pair will decrease. For example, if you execute a sell order for EUR/CAD, you’re saying that you think the Canadian Dollar will depreciate against the Euro.
How to Calculate Forex Profit
You make a profit in forex when the closing price moves in a way you predicted. If you execute a buy order, you want the closing price to be higher than the open. If you execute a sell order, you want the closing price to be lower than the open.
For example, if the price of EUR/CAD went from 1.4135 to 1.4140, it has increased by 5 pips. A pip is any numbers after the decimal point. If you had a buy order for £100, you’d have made a £5 profit (100 X 0.05). If you had a sell order, you’d lose £5.
If the price went from 1.4135 to 1.4130, it will have dropped by 5 pips. A sell order on this would make a profit, but a buy order would lose money.
So, as you can see, your potential profit or loss depends on your opening position, your stake and how many pips the price moves.
Closing Your Position: Taking a Profit or Cutting Losses
You can close a forex position manually when you believe it’s the right time. Alternatively, our recommended online forex brokers offer stop loss and take profit tools.
The former will end a trade once it hits a pre-set loss limit. The latter does the same but in reverse i.e. it automatically ends a trade once you hit a certain amount of profit.
Choose a Broker and Open An Account
Choosing a broker is easy because we’ve reviewed all the best sites. Our experts have been in the business for years so they know what’s what.
That means you can scroll through our online forex site reviews to learn about how each one works and the features they offer. From there, you can find the one that suits your needs and start trading EUR/CAD safely and securely.
Weighing up the variables of a currency pair is great, but this is only one part of the equation. The other thing you have to do before opening a position is to consider the following risks:
- Stake a Sensible Amount: The amount you stake on a trade should be a small percentage of your overall bankroll. As a general rule, don’t risk more than 5% of your account balance on a single trade.
- Treat Leverage with Caution: A standard lot in forex is 100,000 units of currency, which is more than most retail traders can afford. However, the best online forex brokers allow you to gain full market exposure using something known as leverage. This multiplies your stake. That’s great, but it also magnifies any losses, so it should also be considered as a potential risk.
- Do Your Research: Nothing is guaranteed in forex. Therefore, if you’re going to trade EUR/CAD, make sure you’re well informed. Do your research, weigh up all the variables and don’t take any unnecessary risks.
Now you understand more about EUR/CAD forex trading, the only thing left to do is get started. Use our onsite resources to learn more about currency pairs and trading in general. Then, once you’re ready, join our recommended online forex sites and speculate on EUR/CAD