Forex currency pair is one of the basic terms in the world of Forex trading. It signifies the exchange rate so to say how much one currency costs regarding another.
Among the most popular Forex currency pairs are EUR/USD, GBP/USD, and USD/JPY.
A currency pair: an overview
A forex currency pair consists of two parts: a base and a quote. The base currency goes first, and the quote goes second. The order is strict, it shows how much of a quote currency you would need to buy a base currency. To make it clear let’s take the EUR/USD part.
Each pair has a bid and offer price. The first one shows at which rate you can sell the currencies, and the second one — at which rate you can buy them. The prices are usually established by a broker.
3 main types of currency pairs
There are three types of currency pairs:
The major pairs include the most traded currencies in the world that belong to countries with leading economies. It is British pound sterling, euro, Swiss franc, Japanese yen, Australian, Canadian, and New Zealand dollars. The pair is considered major if the US dollar is traded in it.
There are 7 major pairs:
- EUR/USD — euro/US dollar;
- GBP/USD — British pound/US dollar;
- USD/JPY — US dollar/Japanese yen;
- USD/CHF — US dollar/Swiss franc;
- USD/CAD — US dollar/Canadian dollar;
- AUD/USD — Australian dollar/US dollar;
- NZD/USD — New Zealand dollar/US dollar.
The major pairs make up 75% of Forex trading as they are the most liquid and traded pair on the market. They also have the tightest bid and offer spreads because they have the largest number of buyers and sellers.
The minor pairs are the pairs that consist of leading currencies trading with one another. They don’t include US dollars. For example, pairs EUR/GBP, and AUD/NZD are minor pairs.
Pairs are called exotic if they include currencies outside the list of most traded ones. Among them are the Polish zloty, Swedish krona, Russian ruble, etc. Exotic pairs may include both high and low-liquid currencies.