What are Currency Pairs?

What are Currency Pairs?

Currency pairs have become an essential part of trading as it is the key factor in forex trading. It also varies from major, minor, and exotic pairs making hundreds of available pairs to choose from making the forex market the largest market available in the present world.

To further expound, Currency pairs are the quotation and pricing edifice of the exchanges marketed in the forex industry. They are valued by comparing a currency’s rate to another.

See also: Profiting In Forex

A currency pair’s structure is defined by a base currency and a quote currency.  The base currency is usually listed first and is followed by the quote currency. The quote currency functions as an indicator determining the quantity needed to purchase a unit of the base currency.

Kinds of Currency Pairs

As mentioned, there are over a hundred currency pairs available for trades. Not only that, these pairs are grouped further down or classified in three different categories: Major, Minor, and Exotics. They are determined by the amount of trading volume collected in a day.

currency pairs
The forex market generates trillions due to the number of available currency pairs all up for trades.

Major Currency pairs are named as such for the amount of trades it gets in day. These pairs are usually liquid than the others on account of the amount of volume they can accumulate within a period. Most currencies trading along the US Dollar fall under this category. To cite some examples, the EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD and USD/CAD are all considered as such.

Furthermore, minor and exotics are currency pairs that are mostly not involved with the US Dollar. They also are considered liquid but not as liquid as the major pairs because of its wider spreads. GBP/JPY, EUR/GBP, AUD/NZD and GBP/CAD are some of the known cross or minor currencies.

Exotic pairs usually are partnered with emerging currencies. USD/RUB, USD/ZAR and EUR/TRY can all fall under this category.

How It Works

In trading forex pairs, a trader can buy the base currency and subliminally sell the quoted currency. The bid or buy price denotes the quantity of the quote currency needed to get a unit of the base currency. Contrariwise, when selling a currency pair, traders usually sell the base currency and receive the quote currency. The ask or sell price for the currency pair indicates that value a trader will have in the quote currency for selling a unit of the selected base currency.

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