Forex currency pairs represent two different currencies traded on the foreign exchange market—the largest and most liquid financial market globally. Understanding currency pairs and how to trade them is essential for investors.
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Understanding Currency Pairs
A currency pair is a quotation of two currencies, where one currency's value is measured against another. For example, EUR/USD (Euro vs. US Dollar) is a widely traded pair.
- Base Currency: The first currency listed (e.g., EUR in EUR/USD).
- Quote Currency: The second currency (e.g., USD in EUR/USD).
When trading, you buy or sell the base currency. For instance:
- Buying GBP/USD means buying British Pounds while selling US Dollars.
- Selling GBP/USD means shorting GBP and going long on USD.
Top-Traded Currency Pairs
The forex market sees ~$6 trillion in daily volume. Key pairs include:
| Pair | Nickname | Market Share (2025) |
|----------------|-------------|------------------------|
| EUR/USD | Fiber | 24% |
| USD/JPY | Ninja | 13% |
| GBP/USD | Cable | 10% |
| USD/CHF | Swissie | 4% |
EUR/USD dominates due to the economic influence of the US and EU.
Categories of Currency Pairs
1. Major Pairs
- Include USD + another major currency (e.g., EUR, JPY, GBP).
- High liquidity, tight spreads.
2. Minor Pairs
- Exclude USD but involve other majors (e.g., EUR/GBP, GBP/JPY).
- Slightly wider spreads.
3. Exotic Pairs
- Pair a major currency with an emerging-market currency (e.g., USD/RUB).
- Higher risk due to lower liquidity.
4. Commodity Pairs
- Linked to commodity-rich economies (e.g., AUD/USD, USD/CAD).
5. Cross-Currency Pairs
- Exclude USD (e.g., EUR/JPY, GBP/AUD).
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FAQs
Why is EUR/USD more common than USD/EUR?
Historically, forex conventions favor certain pair formats. Liquidity is higher for EUR/USD, making it the standard.
Who decides if a pair is major, minor, or exotic?
Classifications are informal and based on trader consensus and liquidity metrics.
How many currency pairs exist?
Hundreds, but only ~20–30 are actively traded. Exotics vary as economies evolve.
Key Takeaways
- Currency pairs enable diversification and leverage in forex trading.
- Majors offer stability; exotics carry higher risk/reward.
- Always assess liquidity and spreads before trading.
Disclaimer: Trading involves risk. Never invest more than you can afford to lose.