What are currency pairs?
A currency pair is a quotation of two different currencies, and the value of one currency is quoted in relation to the other. The first specified currency in the currency pair is called the base, and the second is the quoted one.
Currency pairs compare the value of one currency with another – the base currency (or the first) with the second or quote currency. It shows how many units of the quoted currency are needed to buy one unit of the base currency. Currencies are designated by the ISO currency code, or the three-letter letter code with which they are associated on the international market. So, for the US dollar, the ISO code will be USD.
Most popular forex pairs for beginners
The US Dollar (USD) is the most frequently traded currency in the world, so in most major Forex pairs, the US dollar acts as the base or quoted currency. In combination with other currencies of the world’s largest economies, including China, Japan and the UK, they are considered as the main cross-pairs.
The major currency pairs are particularly attractive to traders because they represent the most prosperous and stable economies in the world, and traders can take advantage of their low spreads that accurately reflect the market value. Major currency pairs are often the most traded currencies among newcomers.
How Currency Pairs Work
Exchange rates in currency pairs float. A floating exchange rate means that it is constantly changing. These changes can be caused by many factors. Currency pairs are used to determine the value of one currency in relation to another, and exchange rates constantly fluctuate depending on changes in their value. One currency will always be stronger than the other.
The calculation of rates between currency pairs is made taking into account the factor of the base currency. A typical quote of a currency pair may look like this: EUR/USD 1.3045. In this example, the euro (EUR) is the base currency, and the US dollar (USD) is the quoted currency. The difference between the two currencies represents the price of the ratio. In this example, one euro will be traded for 1.3045 US dollars. In other words, the base currency is multiplied to get the equivalent of the value or purchasing power of a foreign currency.
Using the above example, a currency trader will create a position in which he will simultaneously hold a long position on the euro and a short position on the dollar. In order for a trader to make a profit, the euro exchange rate must rise. Otherwise, when a trader opens a short position on the EUR/USD currency pair, he speculates that the value of the US dollar will rise compared to the euro. Changes in exchange rates are known as interest rate movements (PIP).
Understanding Currency Pairs
Currency pairs are often traded on the foreign exchange market. The Forex market allows you to buy and sell, as well as convert currencies for international trade and investment. As a rule, the Forex market works 5 days a week, 24 hours a day.
Trading on the Forex market consists in the constant purchase and sale of currency. When buying a currency pair, investors purchase the base currency and sell the quoted currency. The purchase price is the amount of quoted currency required to obtain one unit of the base currency.
On the other hand, when selling a currency pair, the investor sells the base currency and receives the quoted currency. Thus, the selling price of a currency pair is the amount that can be obtained in the quoted currency for providing one unit of the base currency.
However, when trading currencies, investors sell one currency to buy another.
Currency Pairs Examples
The most actively traded currency pair is the euro against the US dollar – also known as EUR/USD. To get acquainted with currency pairs, let’s give an example:
It’s 2025, and Johnny plans to go to New York on vacation. He lives in Canada and has only Canadian dollars with him. So he goes to the currency exchange office and wants to exchange his CAD for USD. A store employee reports that the quote is USD/CAD = 1.3. This means that 1 US dollar is equivalent to 1.3 Canadian dollars.
In our example, USD is considered the base currency, and CAD is the quoted currency. Thus, Johnny can exchange 1.3 CAD dollars for 1 USD at the exchange office.
There are many different currency pairs in the world, which are classified depending on the frequency and volume of trading. If the US dollar is used as a reference, then the currencies traded against it with the largest volume are called major currencies. The list of major currency pairs includes, in particular, the following:
- EUR/USD
- GBP/USD
- AUD/USD
- USD/CAD
Summary
We offer the largest number of Forex trading pairs in the industry: more than 300 currency pairs are available on our platform, so the Forex market opens up wide opportunities for traders around the world. Regardless of whether you trade minor, exotic or the most traded currencies, there is a trading strategy for each person and trading style that allows you to maximize market liquidity.
