A currency pair is the fundamental unit of trading in the foreign exchange (Forex) market. Unlike stocks or commodities that can be priced in a single unit, currencies must always be quoted relative to each other. As a result, every Forex transaction involves two currencies—one being bought and the other sold at the same time.
Moreover, the Forex market is the world’s largest financial market, with a daily trading volume exceeding $7 trillion (BIS 2024). Every dollar, euro, yen, or pound exchanged globally passes through the structure of currency pairs. In fact, whether it is a multinational corporation hedging against exchange risk, a central bank adjusting reserves, or a retail trader speculating on price movements, all activity is centred on currency pairs.
For instance, when a trader buys EUR/USD, they are simultaneously buying euros and selling U.S. dollars. If EUR/USD rises, the euro is gaining value relative to the dollar, and the trader profits. Conversely, if the pair falls, the euro weakens against the dollar, and the trader loses.
Therefore, this article explores the definition of currency pairs, how they work, their types (majors, minors, and exotics), why they matter, real-world examples, the risks of trading them, and tips for traders. By the end, you will have a full understanding of how currency pairs serve as the backbone of Forex trading.
A currency pair is a quotation of two different currencies, showing how much of one currency (the quote currency) is required to buy one unit of another (the base currency).
If EUR/USD = 1.1200, it means one euro equals 1.12 U.S. dollars.
If USD/JPY = 150.00, it means one U.S. dollar equals 150 Japanese yen.
Currency pairs exist because currencies have no standalone value. Their worth is always relative, determined by how much one is exchanged for another.
In the EUR/USD pair:
This dual-quotation system ensures that traders can profit whether a currency rises or falls—by buying or selling pairs.
Currency pairs operate on the principles of supply and demand. Prices move because participants constantly buy and sell, reacting to economic, political, and psychological factors.
Example: EUR/USD 1.1200/1.1202
Suppose EUR/USD rises from 1.1200 to 1.1300. A trader who bought one standard lot (100,000 EUR) gains 100 pips, equal to $1,000.
Suppose USD/JPY falls from 150.00 to 148.00. A trader who sold one standard lot earns 200 pips, equal to ¥200,000.
This illustrates how even small fluctuations in exchange rates create opportunities for significant profits or losses.
Currency pairs fall into three categories: Majors, Minors, and Exotics. Each has unique characteristics that influence trading strategy.
Major pairs always include the U.S. Dollar (USD), the most traded currency in the world. They account for more than 80% of Forex volume.
EUR/USD (Euro / U.S. Dollar)
GBP/USD (British Pound / U.S. Dollar)
USD/JPY (U.S. Dollar / Japanese Yen)
USD/CHF (U.S. Dollar / Swiss Franc)
AUD/USD (Australian Dollar / U.S. Dollar)
USD/CAD (U.S. Dollar / Canadian Dollar)
Extremely high liquidity
Tight spreads (often < 1 pip on EUR/USD)
Lower volatility than exotics
Heavily influenced by U.S. economic data
Ideal for beginners due to stability
Abundant resources, strategies, and historical data
Less slippage in high-volume trades
Minor pairs, also called crosses, exclude the U.S. Dollar but involve other major currencies.
EUR/GBP (Euro / British Pound)
EUR/JPY (Euro / Japanese Yen)
GBP/JPY (British Pound / Japanese Yen)
AUD/JPY (Australian Dollar / Japanese Yen)
Lower liquidity than majors
Wider spreads than majors
Often driven by regional events (e.g., EUR/GBP reacts to EU–UK relations)
Provide diversification for traders who don’t want USD exposure
Exotics include one major currency and one from an emerging or developing economy.
USD/TRY (U.S. Dollar / Turkish Lira)
EUR/ZAR (Euro / South African Rand)
USD/MXN (U.S. Dollar / Mexican Peso)
USD/THB (U.S. Dollar / Thai Baht)
Lower liquidity
Much wider spreads (can be 10–50 pips or more)
High volatility, prone to sudden moves
Sensitive to local political and economic conditions
Sharp swings can trigger stop losses quickly
Not suitable for beginners
Requires knowledge of the specific country’s economy
| Type | Examples | Liquidity | Spread | Volatility | Best For |
|---|---|---|---|---|---|
| Majors | EUR/USD, USD/JPY | Very High | Very Low | Low–Medium | Beginners & Pros |
| Minors | EUR/GBP, GBP/JPY | Medium | Medium | Medium | Diversification |
| Exotics | USD/TRY, EUR/ZAR | Low | High | High | Advanced Traders |
Therefore, currency pairs are essential because:
They define all Forex trades. Without pairs, there is no Forex market.
They allow relative value trading. You can profit whether a currency strengthens or weakens.
They drive technical analysis. Charts like candlesticks, line charts, and Heikin Ashi only exist for currency pairs.
They impact risk management. Different pairs carry different levels of volatility, spreads, and correlation.
For example:
Scalpers often prefer EUR/USD due to its tight spread.
Swing traders may prefer GBP/JPY for larger movements.
Advanced traders may use USD/TRY for high-risk, high-reward opportunities.
EUR/USD Example: Buy at 1.1200, sell at 1.1300 → 100 pips = $1,000 profit on a standard lot.
GBP/JPY Example: Move of 200 pips in one day, larger swings, but higher risk.
USD/TRY Example: Political instability causes a 1000-pip move overnight, with massive risk/reward potential.
Trading currency pairs carries inherent risks:
Spreads: Wider on minors and exotics.
Volatility: Sudden news can cause extreme swings.
Correlation: Many pairs move together (e.g., EUR/USD and GBP/USD).
Leverage: Amplifies both profits and losses.
Overexposure: Trading multiple correlated pairs increases risk.
Stick to majors if you are a beginner.
Use stop-loss orders.
Avoid over-leveraging.
Diversify across uncorrelated pairs.
Forex Trading – Market Structure
Exchange Rate, Base Currency, Quote Currency, Spread, Pips, Leverage, Forex
A currency pair is a quote of two currencies, showing relative value.
The first currency = base, the second = quote.
Types: Majors, Minors, Exotics.
Majors = high liquidity and low spreads.
Exotics = high volatility and wide spreads.
Choosing the right pair is critical for strategy and risk management.
Start your trading journey with major pairs. They offer high liquidity, tight spreads, and smoother market behaviour—perfect for building confidence. Once experienced, carefully explore minors and exotics.
