Forex Currency Pairs Explained

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A currency pair is the main trading instrument in the Foreign Exchange market (Forex). Trading currency pairs, which provided an opportunity for everybody to profit from the rate differences, became relevant after the establishment of the Forex market, when the IMF officially allowed the countries to abolish pegging their national currency to dollar and gold reserves.

This article covers the fundamentals of currency pairs, including their structure, types, and trading strategies. We’ll explore liquidity, volatility, and market trends to help traders make informed decisions. Beginners will find practical tips like using demo or cent accounts to start safely. Advanced strategies for risk management and broker selection are also discussed.

What is a currency pair?

Currency pairs, or trading pairs, in Forex represent the exchange of one national currency for another, with one currency bought at the price of the other. Each pair consists of two parts:

the base currency, listed first;
the quote currency, listed second, which determines the value of the base.

For example, in EUR/USD, EUR (euro) is the base currency, and USD (dollar) is the quote currency. Understanding this structure is essential for novice traders. While currency pair symbols like EUR/USD or GBP/JPY are sometimes called "tickers," they are technically codes, as tickers apply to assets like stocks or bonds.

In the Forex market, currency pairs are represented by their international three-letter abbreviations, as standardized by the International Organization for Standardization (ISO). This global standard ensures clarity and consistency, allowing traders worldwide to recognize and trade pairs seamlessly, regardless of their location.

Example of calculating a currency pair

When trading Forex, the first currency in the pair is the base currency, while the second is the quote currency. The price of the pair reflects how much of the quote currency is required to purchase one unit of the base currency. For example:

EUR/USD = 1.18
This means 1 EUR (base currency) costs 1.18 USD (quote currency). If you want to purchase €1,000, you would multiply the amount by the exchange rate: €1,000 × 1.18 = $1,180.

Conversely, if you are selling EUR to obtain USD, the same principle applies. For every euro sold, you receive 1.18 USD. The calculation follows the universal Forex principle of trading the base currency against the quoted currency.

Key insight on quotes

The number following the currency pair (e.g., 1.18) always represents the amount of the quote currency needed for one unit of the base currency. It is crucial to note that the quote refers to exactly one unit—not ten, one hundred, or any other number. This uniformity allows traders to quickly and accurately interpret prices, avoiding confusion during trading decisions.

Understanding this foundational concept is vital for accurate calculations and effective trading strategies, as even minor misinterpretations can lead to costly errors in Forex trading.

Currency pair classification

In Forex trading, currency pairs always involve two monetary units — one is bought, the other is sold. These pairs are regulated by ISO standards, ensuring uniformity worldwide. Forex pairs fall into three categories:

Majors
Minors (crosses)
Exotics.

Additionally, pairs are classified as direct or inverse, depending on the position of currencies like USD, NZD, AUD, or GBP. For example, EUR/USD is a direct pair (USD on the right), while USD/CAD is inverse (USD on the left). Understanding these classifications helps traders optimize strategies and select suitable currency pairs.

Major currency pairs

Major currency pairs dominate the Forex market, accounting for most of its trading volume. These pairs are highly liquid, have the largest trade volumes, and offer the lowest spreads, making them ideal for beginners and seasoned traders alike. Majors represent the currencies of stable, developed economies like the USA, EU countries, Canada, Japan, the UK, Switzerland, Australia, and New Zealand.

The primary major pairs include:

AUD/USD
EUR/USD
USD/JPY
GBP/USD
USD/CHF
USD/CAD
NZD/USD

In all major pairs, the US dollar is always present, either as the base currency or the quoted currency. This reflects the dollar’s dominance as the world’s strongest currency and its pivotal role in global trade.

Notably, spreads for major pairs are the lowest in Forex, representing the broker's commission for trades. This low spread is due to their high liquidity and frequent trading. Factors like trade size, market conditions, and instrument liquidity can still influence spreads. Stick to the seven officially recognized major pairs, as any others listed by brokers are incorrect. These pairs offer optimal conditions for efficient and cost-effective trading.

Crosses

Crosses, also known as minors, are currency pairs that exclude the US dollar. These pairs involve currencies from developed and stable economies such as the EU, Japan, Canada, the UK, Switzerland, Australia, and New Zealand. While crosses have relatively high liquidity, they tend to carry higher spreads compared to majors, making them less popular among traders. However, they are still profitable when approached with the right strategy.

Examples of crosses include:

AUD/CAD
EUR/AUD
EUR/NZD
AUD/CHF
EUR/CAD
GBP/AUD
AUD/JPY
EUR/CHF
GBP/CHF
AUD/NZD
EUR/GBP
GBP/JPY
CAD/JPY
EUR/JPY
NZD/JPY

To differentiate, remember that pairs involving the US dollar are majors, while those without it are crosses. For instance, EUR/GBP is a cross, while USD/RUB would fall under exotics due to the involvement of the Russian ruble, a non-major currency.

Exotic pairs

Exotic pairs involve a currency from the majors paired with one from a weaker or developing economy. These pairs, such as USD/RUB, USD/MXN, and EUR/DKK, have lower liquidity and higher spreads, making them less popular among traders. The spread can also fluctuate depending on market interest and broker policies.

Exotics are challenging for beginners due to their volatility and higher trading costs. However, they can be rewarding for experienced traders who understand their risks. Majors remain the top choice for most traders, especially beginners, as they dominate over 62% of global financial reserves, ensuring stability and profitability. If unsure, starting with dollar majors is the safest and most logical approach.

How to trade currency pairs in the Forex market

Trading currency pairs in the Forex market involves buying one currency while selling another to profit from changes in exchange rates. To trade effectively, follow these steps.

Understand currency pairs. Currencies are traded in pairs and categorized into majors (e.g., EUR/USD), minors (e.g., EUR/GBP), and exotics (e.g., USD/TRY). Majors include the USD and are highly liquid, making them suitable for beginners. Minors exclude the USD but involve other major currencies, while exotics include less common currencies and are often more volatile.
Conduct analysis.
- Fundamental analysis. Examine economic indicators, geopolitical events, and news that influence currency values. Central bank interest rate decisions, for example, can significantly impact currency strength.
- Technical analysis. Use charts and technical tools to identify market trends and potential entry or exit points. Indicators like moving averages and relative strength index (RSI) can be helpful.
Develop a trading plan. Define your trading goals, risk tolerance, and strategies. Decide on position sizes, set stop-loss and take-profit levels, and choose a time frame that fits your objectives and schedule.
Practice risk management. Use stop-loss orders to limit potential losses and avoid over-leveraging, as high leverage can amplify both gains and losses.
Choose a reliable broker. Select a regulated broker with a user-friendly platform, competitive spreads, and strong customer support. Ensure the broker offers access to the currency pairs you plan to trade.
Use a demo account. Practice trading with a demo account before committing real funds. This helps you refine strategies and familiarize yourself with the platform without financial risk.
Stay informed. Keep up with global economic developments and market news. Staying updated is essential for making informed trading decisions.

What is a cent account?

A cent account is a type of trading account designed for beginners or traders who want to test strategies with minimal risk. Unlike standard accounts, the balances and transactions in cent accounts are measured in cents instead of dollars. For example, depositing $10 into a cent account is displayed as 1,000 cents.

Key features of a cent account

Allows you to start trading with very small amounts, ideal for new traders.
Since trades involve smaller amounts, losses are less impactful.
Offers a way to trade in live market conditions without significant financial exposure.
Provides access to leverage, enabling slightly larger trades while still managing risk.
A safe way to experiment with trading techniques and strategies in real conditions.

Other methods of making Forex trading simpler

Beginners can start trading smaller amounts by using fractional lots, like 0.01 lots instead of the standard $100,000 lot, making trading more accessible. Additionally, leverage allows traders to control larger positions with smaller deposits; for instance, 1:100 leverage lets a $100 deposit control $10,000, increasing profit potential while minimizing initial investment. Another top feature to consider is the spread between the ask and bid price.

Understanding spread in Forex trading

In Forex trading, the spread is the difference between the bid price (the price at which you can sell a currency) and the ask price (the price at which you can buy it). This difference represents the cost of entering a trade and serves as the broker's fee for facilitating the transaction. For example, if EUR/USD has a bid price of 1.3607 and an ask price of 1.3609, the spread is 2 pips. Traders need to consider this cost, as it impacts the profitability of each trade by determining the break-even point.

Several factors influence spreads in Forex trading. Liquidity is a significant factor — major pairs like EUR/USD tend to have tighter spreads due to their high trading volume, while exotic pairs usually have wider spreads because of lower liquidity. Market volatility also plays a role, as spreads can widen during periods of uncertainty, such as major news events. Additionally, the broker's pricing model, whether commission-based or commission-free, affects spreads. Understanding these elements helps traders anticipate costs and plan their trades effectively.

To minimize the impact of spreads, traders can adopt smart strategies. Choosing a broker that offers consistently competitive spreads is essential. Trading during peak market hours, when liquidity is high, can result in lower spreads. Using limit orders instead of market orders also gives better control over entry and exit prices, helping to manage the cost of spreads. By taking these measures, traders can reduce expenses and improve their trading outcomes.

What are trends and trending currency pairs in the Forex market?

In the Forex market, a trend is the consistent movement of a currency pair’s price in a specific direction over time. Trends can move upward (bullish), downward (bearish), or sideways (ranging). Identifying trends is essential for traders, as they provide opportunities to capitalize on predictable price movements.

Certain currency pairs are known for developing strong and clear trends, making them popular among traders. EUR/USD, for example, is the most traded pair globally and frequently exhibits well-defined trends due to the economic relationship between the Eurozone and the U.S. Similarly, pairs like GBP/USD, USD/JPY, and AUD/USD are favored for their tendency to establish consistent price directions.

Commodity-linked currencies often present trending opportunities as well. Pairs like USD/CAD, AUD/USD, and NZD/USD are influenced by commodity prices, reflecting global demand for exports from Canada, Australia, and New Zealand. These movements can create long-lasting trends tied to shifts in commodities such as oil, gold, or dairy products.

Although certain pairs are more likely to trend, market conditions can shift rapidly. Traders should monitor economic indicators, central bank policies, and geopolitical events to stay informed about factors influencing these movements. Combining this understanding with sound risk management strategies ensures traders can make the most of trending currency pairs.

How do currency pairs work – liquidity and volatility

Liquidity in the Forex market reflects the trading volume and activity of a currency pair. It measures how easily an asset can be bought or sold. The most liquid currency pairs, traded by both beginners and professionals, include:

EUR/USD: 28% of Forex trades
USD/JPY: 13%
GBP/USD: 11%

Highly liquid pairs offer low spreads, fast order execution, and rare drawdowns, but aren’t necessarily the most predictable. Volatility, on the other hand, indicates the rate of price changes within a currency pair. Liquidity and volatility are inversely related: highly volatile pairs are less liquid, while liquid pairs show smaller price ranges.

Volatility indicators, like moving averages and Bollinger Bands, help measure market fluctuations. For instance, GBP/NZD and GBP/AUD are historically volatile pairs. While higher volatility offers potential profit, it carries higher risks, making low-volatility pairs better for cautious trading. Using volatility tables from brokers helps manage risks effectively.

Mirror pairs and key currency characteristics in Forex

Mirror pairs are currency pairs that move in opposite (negative correlation) or similar (positive correlation) directions. Traders use their correlation to predict price changes; for example, if one pair moves up, its mirror pair may move down. Recognizing these correlations can enhance trading strategies by revealing relationships between pairs.

Major pairs like EUR/USD, USD/JPY, and GBP/USD dominate due to their liquidity and volatility. EUR/USD is highly liquid but volatile, averaging 750 pips daily, making it a common starting point for beginners. USD/JPY ranks second with exceptional liquidity and daily volatility of about 1,300 pips, reflecting its unique economic backdrop. GBP/USD, with 9-11% of total Forex trades, is the most volatile, reaching up to 1,390 pips per day due to the high value of the British pound.

While volatility provides profit opportunities, it also increases risk. Traders should factor volatility, liquidity, and correlation into their strategies for informed decision-making.

Finding the best Forex brokers for beginners requires a close evaluation of certain features newbies might need to get into the trading space conveniently. Here are 5 Forex brokers that are beginner friendly.

Best Forex brokers for beginners
	Number of pairs	Min. deposit, $	Min Spread EUR/USD, pips	Max Spread EUR/USD, pips	Withdrawal fee, %	Open an account
Exness	100	10	0,6	1,5		Open an account Your capital is at risk.
Pocket Option	40	5	0,5	1,0		Open an account Your capital is at risk.
RoboForex	40	10	0,5	2	0-4	Open an account Your capital is at risk.
Eightcap	40	100	0,4	1,5		Open an account Your capital is at risk.
XM Group	57	5	0,7	1,2		Open an account Your capital is at risk.

Exness Review

Open an account

Your capital is at risk.

Exness is one of the world’s largest brokers, known for its competitive trading conditions, high security, and wide selection of assets. The company serves over 1 million active clients and processes a monthly volume exceeding $4 trillion.
While specializing in currency pairs, Exness also offers CFDs on stocks, commodities, indices, and cryptocurrencies. The broker caters to all experience levels with various account types – from cent accounts and social trading for beginners to high leverage and Expert Advisor support for seasoned professionals.
Exness holds multiple international licenses, including the stringent FCA and CySEC, ensuring trader funds are protected.
With features like 24/7 support, fast withdrawals, and analytics tools, Exness strives to provide an optimal trading experience.

Pocket Option Review

Open an account

Your capital is at risk.

The Pocket Option broker is part of Gembell Limited holding, which was founded by a group of professionals seasoned in trading and investment activities. The company is mass-market requirements-based, therefore, it provides quality services to binary options trading in the OTC market access. The broker strives to make the trading process as simple, clear, and convenient as possible. For this reason, Pocket Option has developed a unique trading platform to ensure stable trading for traders and investors.

RoboForex Review

Open an account

Your capital is at risk.

RoboForex is a well-established brokerage company offering a broad spectrum of trading opportunities for active traders and investors alike. With an impressive selection of over 12,000 financial instruments - including currency pairs, CFDs on stocks, indices, metals, energies, and futures - RoboForex provides a versatile trading environment.
The broker boasts competitive trading conditions: tight spreads starting from 0 pips, high leverage up to 1:2000, and fast execution speeds. The broker also offers the CopyFx investment program, which allows traders to copy the strategies of successful investors and earn passive income. Additional perks include instant fund withdrawals and some of the industry’s highest affiliate payments (up to 84%).
RoboForex prioritizes reliability and client satisfaction, establishing itself as a trusted partner for traders worldwide.

Stay away from exotic pairs unless you’re prepared for their wild price swings

When trading currency pairs, stick to trading pairs that are busiest during your active hours. If you’re in Europe, focus on EUR/USD or GBP/USD since they’ll be most active when you’re awake. Trading during these hours ensures tighter spreads and quicker execution, which saves money and increases your chances of success. Stay away from exotic pairs unless you’re prepared for their wild price swings, as they can drain your account if you’re not careful, despite their high return potential.

Plan your trades by checking events on an economic calendar. Instead of reacting to big news like interest rate changes, prepare ahead of time by focusing on currencies likely to move. For example, if a central bank meeting is coming up, trade pairs that include that currency. Check what most traders are doing to spot overconfidence in the market. If everyone seems overly bullish or bearish, it’s often a sign to avoid jumping in with the crowd. This keeps you from following the crowd blindly and helps you find smarter opportunities to trade.

Summary

Understanding currency pairs is crucial for Forex trading success. This guide explains the basics of reading currency pairs, their liquidity, volatility, and correlations. Start with a demo or cent account to practice trading strategies with minimal risk before progressing to standard accounts. Choosing a regulated broker with competitive spreads and reliable tools is essential for a smooth trading experience. Remember, while major pairs are ideal for beginners, mastering exotic pairs requires time, experience, and effective risk management.

FAQs

What is a currency pair in simple words?

A currency pair consists of two national currencies, where one is bought at the price of the other, like EUR/USD.

What is liquidity and volatility of a currency pair?

Liquidity is the trading volume or demand for a currency pair, while volatility measures daily price fluctuations.

What are the most traded currency pairs?

The most traded pairs are majors like EUR/USD and USD/JPY; beginners should start with majors before trying crosses.

Where do I trade currency pairs?

Trade currency pairs in the Forex market by selecting a broker, opening an account, depositing funds, and installing a platform.

Team that worked on the article

Peter Emmanuel Chijioke is a professional personal finance, Forex, crypto, blockchain, NFT, and Web3 writer and a contributor to the Traders Union website. As a computer science graduate with a robust background in programming, machine learning, and blockchain technology, he possesses a comprehensive understanding of software, technologies, cryptocurrency, and Forex trading.

Having skills in blockchain technology and over 7 years of experience in crafting technical articles on trading, software, and personal finance, he brings a unique blend of theoretical knowledge and practical expertise to the table. His skill set encompasses a diverse range of personal finance technologies and industries, making him a valuable asset to any team or project focused on innovative solutions, personal finance, and investing technologies.

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Chinmay Soni is a financial analyst with more than 5 years of experience in working with stocks, Forex, derivatives, and other assets. As a founder of a boutique research firm and an active researcher, he covers various industries and fields, providing insights backed by statistical data. He is also an educator in the field of finance and technology.

As an author for Traders Union, he contributes his deep analytical insights on various topics, taking into account various aspects.

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).

Spread (in Forex)

A forex spread is the difference between the buying (bid) and selling (ask) prices of a currency pair, serving as the cost of trading and the broker's profit margin.

Exotic Currency Pairs

Exotic currencies are currencies from countries with smaller or emerging economies, and they are less commonly traded in the foreign exchange market compared to major currencies like the US Dollar, Euro. These currencies are often considered exotic because they are not as liquid or widely used in international trade and finance.

Forex market trend

In the Forex market, a “trend” is the label used to describe the general direction that the prices of currency pairs are moving in, over a specific period of time. Trends are basically the pattern that a currency pair appears to be following and can help traders determine when to enter and exit a trade.

Forex Trading

Forex trading, short for foreign exchange trading, is the practice of buying and selling currencies in the global foreign exchange market with the aim of profiting from fluctuations in exchange rates. Traders speculate on whether one currency will rise or fall in value relative to another currency and make trading decisions accordingly. However, beware that trading carries risks, and you can lose your whole capital.

Volatility

Volatility refers to the degree of variation or fluctuation in the price or value of a financial asset, such as stocks, bonds, or cryptocurrencies, over a period of time. Higher volatility indicates that an asset's price is experiencing more significant and rapid price swings, while lower volatility suggests relatively stable and gradual price movements.