Category: Forex Forex Basics September 26, 2024

What are Forex Currency Pairs?
In Forex trading, currencies are traded in pairs, which represent the value of one currency relative to another. Each currency pair consists of two components:

1. Base Currency: The first currency in the pair, which is being bought or sold.
2. Quote Currency: The second currency in the pair, which indicates how much of it is needed to purchase one unit of the base currency.

Example of a Currency Pair

EUR/USD: In this pair, the Euro (EUR) is the base currency, and the US Dollar (USD) is the quote currency.
If the exchange rate is 1.20, it means that 1 Euro is equal to 1.20 US Dollars.

Types of Currency Pairs
Currency pairs are generally categorized into three main types:

1. Major Pairs

Definition: The most traded currency pairs, which include the US Dollar (USD) and are highly liquid.
Examples:
• EUR/USD: Euro vs. US Dollar
• USD/JPY: US Dollar vs. Japanese Yen
• GBP/USD: British Pound vs. US Dollar
• USD/CHF: US Dollar vs. Swiss Franc

2. Minor Pairs
Definition: Currency pairs that do not include the US Dollar but involve other major currencies.
Examples:
• EUR/GBP: Euro vs. British Pound
• AUD/NZD: Australian Dollar vs. New Zealand Dollar
• EUR/AUD: Euro vs. Australian Dollar

3. Exotic Pairs

Definition: Currency pairs that involve a major currency and a currency from a developing or smaller economy. These pairs tend to have lower liquidity and higher spreads.

Examples:

• USD/TRY: US Dollar vs. Turkish Lira
• EUR/SEK: Euro vs. Swedish Krona
• USD/ZAR: US Dollar vs. South African Rand

Understanding Exchange Rates

and Ask Price:
• Bid Price: The price at which the market will buy a specific currency pair from you.
• Ask Price: The price at which the market will sell a specific currency pair to you.
• Spread: The difference between the bid and ask price, which represents the broker’s profit margin.

Conclusion
Understanding currency pairs is fundamental for trading in the Forex market. Each pair has unique characteristics influenced by economic indicators, geopolitical events, and market sentiment. Familiarizing yourself with these pairs can help you make informed trading decisions.

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