What Is a Currency Pair?
In the Forex market, currencies are always traded in pairs. When you buy one currency, you're simultaneously selling another. Every currency pair is made up of two components: the base currency (the first listed) and the quote currency (the second listed).
For example, in the pair EUR/USD, the Euro (EUR) is the base currency and the US Dollar (USD) is the quote currency. A price of 1.0850 means it costs $1.0850 to buy 1 Euro.
The Three Categories of Currency Pairs
1. Major Pairs
Major pairs always include the US Dollar on one side. They are the most traded and tend to have the tightest spreads. Examples include:
- EUR/USD – Euro / US Dollar
- GBP/USD – British Pound / US Dollar
- USD/JPY – US Dollar / Japanese Yen
- USD/CHF – US Dollar / Swiss Franc
2. Minor Pairs (Cross Pairs)
Minor pairs don't include the US Dollar but consist of other major currencies. Examples: EUR/GBP, GBP/JPY, AUD/CAD. These tend to have slightly wider spreads than majors.
3. Exotic Pairs
Exotic pairs combine a major currency with a currency from an emerging or smaller economy — such as USD/TRY (US Dollar / Turkish Lira) or EUR/ZAR. They carry higher risk, lower liquidity, and wider spreads.
Understanding Pips and Quotes
A pip (percentage in point) is the smallest standard price move in a currency pair. For most pairs, a pip equals 0.0001 (the fourth decimal place). For JPY pairs, a pip is 0.01 (the second decimal place).
If EUR/USD moves from 1.0850 to 1.0860, it has moved 10 pips.
Bid, Ask, and the Spread
Every currency pair has two prices:
- Bid price: The price at which your broker will buy the base currency from you (you sell at this price).
- Ask price: The price at which your broker will sell the base currency to you (you buy at this price).
The difference between the bid and ask is called the spread — this is how most brokers earn their revenue.
What Moves Currency Pairs?
Currency prices are driven by a range of factors:
- Interest rate decisions by central banks (e.g., the Fed, ECB, Bank of England)
- Inflation data — CPI, PPI reports
- Employment figures — such as Non-Farm Payrolls (NFP)
- Geopolitical events and risk sentiment
- Trade balances and GDP growth
Choosing Your First Pair to Trade
As a beginner, it's best to start with major pairs like EUR/USD or USD/JPY. They offer high liquidity, well-documented price behavior, and abundant analysis resources. Avoid exotic pairs until you have a solid foundation in reading the market.
Key takeaway: Understanding how currency pairs are structured is the foundation of all Forex trading. Master the basics before moving on to strategies and analysis.