Understanding Currency Pairs in Forex

What Are Currency Pairs?

In the forex market, currencies are always traded in pairs. When you trade forex, you are simultaneously buying one currency while selling another. These pairs reflect the relative value of one currency against another."

Base Currency vs. Quote Currency

"Every currency pair consists of a base currency and a quote currency. The base currency is the first currency in the pair, while the second currency is the quote. For instance, in EUR/USD, EUR is the base, and USD is the quote currency."

How Currency Prices Are Quoted

"The price of a currency pair represents how much of the quote currency is needed to buy one unit of the base currency. For example, if EUR/USD is 1.1200, it means 1 euro is equivalent to 1.12 US dollars."

Bid and Ask Price

"In forex trading, you’ll notice two prices for each pair: the bid price and the ask price. The bid is the price at which you can sell the base currency, and the ask is the price at which you can buy it. The difference between the two is known as the spread."

Major Currency Pairs

"Major currency pairs include the most traded currencies in the forex market, always paired with the US dollar. Examples include EUR/USD, GBP/USD, and USD/JPY. These pairs are the most liquid and have the tightest spreads."

Minor Currency Pairs

"Minor pairs do not include the US dollar but involve other major currencies like the euro, pound, or yen. Examples include EUR/GBP and AUD/NZD. Though not as liquid as majors, they still offer good trading opportunities."