In forex trading, a currency pair shows the value of one currency in relation to that of another currency.
Currencies are always traded as pairs in forex trading. In other words: when you buy one currency, you always sell the other currency in the currency pair simultaneously.
In the abbreviated form, the base currency is listed first, followed by the counter currency. In some cases, a forward slash separates the two abbreviated currency titles, but these may also be written without a separation.
Example: If you want to buy euros using U.S. dollars, you will need to buy the EUR/USD currency pair. The euro, in this pair, is the base currency, and the dollar is the counter currency. This pair could also be described as the “euro against U.S. dollar” pair.
A difference is made between major currency pairs (majors), cross currency pairs (crosses) and exotic currency pairs (exotics or minors).
Major currency pairs (majors) all include the U.S. dollar. The significance of the U.S. dollar is slowly decreasing, but it remains the world’s most important currency. Major currency pairs are also suitable for forex trading newcomers because they enjoy high liquidity, keeping spreads small. Examples of major currency pairs are:
EURUSD: The combination of the euro issued by the European Union and the U.S. dollar is the most commonly used currency pair.
USDJPY: The Japanese yen and U.S. dollar pair is the second most popular currency pair.
GPBUSD: The combination of the British pound and the U.S. dollar, sometimes referred to as the “cable”, is the third most popular currency pair.
AUDUSD: Australian dollar to U.S. dollar currency pair, also known as the “aussie”.
USDCAD: U.S. dollar and Canadian dollar combination, also called the “loonie”.
USDCHF: U.S. and Swiss franc pair, also known as the “swissy”.
NZDUSD: U.S. and New Zealand dollar currency pair, also called the “kiwi”.
Cross currency pairs (crosses) combine two major currencies, but do not include the U.S. dollar. Examples of cross currency pairs are:
EURGBP: euro against British pound currency pair.
EURCHF: euro against Swiss franc currency pair.
EURCAD: euro against Canadian dollar currency pair.
EURJPY: euro against Japanese yen currency pair.
GBPCHF: British pound against Swiss francs.
Exotic currency pairs (exotics or minors) are currencies which are not categorized as major. Minors do not work well for forex beginners because liquidity is low and spreads are often very wide. Examples of exotic currency pairs:
UDSSGD: combination of the major currency, U.S. dollar and the minor currency, Singapore dollar.
USDSEK: combination of the major currency, U.S. dollar and the minor currency, Swedish Kroner.
More on this topic:
Online trading: interactive comparison
Trading forex in Switzerland
What is an ask price?
What is a bid-ask spread?
Counter currency explained
Base currency explained
