What Are Currency Pairs?
Course description
As mentioned in the previous sections, currencies are always traded in pairs in forex trading. The price of a currency pair represents the value of one currency relative to another.
Each currency in the pair is given a three-letter code, such as USD (U.S. dollar), EUR (Euro), GBP (British pound), JPY (Japanese yen), and others.
Each pair has two components: the base currency and the quote currency. The base currency is the first currency in the pair, while the quote currency is the second. For example, in GBP/USD, GBP is the base currency, while USD is the quote currency.
The value of a currency pair is expressed as the exchange rate, which is the amount of quote currency required to buy one unit of the base currency. For example, if the exchange rate for the GBP/USD is 1.2500, one GBP is worth 1.2500 US dollars.
When talking about forex pairs, you have to understand the different types. There are three main types of forex pairs: major, minor, and exotic.
Course content
-
Major pairs are the most commonly traded currency pairs in the Forex market and involve USD with major economies' currencies. Examples of major pairs include EUR/USD, USD/JPY, GBP/USD, AUD/USD, NZD/USD, USD/CAD and USD/CHF.
Minor pairs, also known as cross-currency pairs, that do not include USD and involve currencies of developed economies. Examples of pairs include EUR/GBP, GBP/JPY and AUD/NZD.
Exotic pairs involve at least one currency from a developing or emerging market, such as the South African ran, the Brazilian real or the Mexican peso. Examples include USD/MXN and USD/ZAR. Exotic pairs tend to have wider bid-ask spreads and lower liquidity than major and minor pairs.
Speaking of bid/ask spreads, let’s explain what they are and other key concepts in the next section. But first, it’s time to test your brain muscles!
Available in English
Full lifetime access
Interactive Questions
Access on mobile and desktop
Downloadable resources to view offline