What Is a Currency Pair
Understanding How Currencies Are Quoted and Traded
Introduction
In Forex trading, currencies are always traded in pairs.
This is because when you exchange money, you are simultaneously buying one currency and selling another.
A currency pair shows the value of one currency compared to another.
Structure of a Currency Pair
A currency pair has two parts:
Base Currency / Quote Currency
Example:
EUR/USD
- EUR = Base Currency
- USD = Quote Currency
The price tells you how much of the quote currency is needed to buy one unit of the base currency.
Example Explained
If EUR/USD is trading at 1.10:
This means:
1 Euro = 1.10 US Dollars
If the price rises to 1.20:
The Euro has strengthened against the Dollar.
If the price falls to 1.05:
The Euro has weakened against the Dollar.
Types of Currency Pairs
🔹 Major Pairs
These involve the US Dollar and are the most traded globally.
Examples:
- EUR/USD
- GBP/USD
- USD/JPY
- USD/CHF
They usually have high liquidity and lower spreads.
🔹 Minor Pairs
These do not include the US Dollar but involve major currencies.
Examples:
- EUR/GBP
- EUR/JPY
- GBP/JPY
They may have slightly wider spreads.
🔹 Exotic Pairs
These include one major currency and one currency from a developing economy.
Examples:
- USD/TRY
- USD/ZAR
They often have higher volatility and wider spreads.
What Does Buying or Selling Mean?
When you buy a currency pair:
You expect the base currency to strengthen.
When you sell a currency pair:
You expect the base currency to weaken.
Forex trading is about predicting relative strength between two economies.
Why Currency Pairs Matter
Understanding pairs helps traders:
- Identify economic relationships
- Compare global currencies
- Manage risk exposure
- Diversify trading strategies
Each pair reacts differently to global news and economic data.
Final Thoughts
A currency pair represents the value relationship between two economies.
Mastering currency pair structure is essential before moving to more advanced Forex concepts like pips, leverage, and margin.