What Is a Currency Pair?
A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency.
When you trade in the forex market, you buy or sell in currency pairs.
Important Notes :
- A currency pair is a price quote of the exchange rate for two different currencies traded in FX markets.
- When an order is placed for a currency pair, the first listed currency or base currency is bought while the second listed currency in a currency pair or quote currency is sold.
- The EUR/USD currency pair is considered the most liquid currency pair in the world. The USD/JPY is the second most popular currency pair in the world.
There are three categories of currency pairs:
- The “majors“
- The “crosses“
- The “exotics“
- The major currency pairs always include the U.S. dollar.
- Cross-currency pairs do NOT include the U.S. dollar. Crosses that involve any of the major currencies are also known as ” minors”.
- Exotic currency pairs consist of one major currency and one currency from an emerging market (EM).
Major Currency Pairs
The currency pairs listed below are considered the “majors.”
These pairs all contain the U.S. dollar (USD) on one side and are the most frequently traded.
While there are EIGHT major currencies, there are only SEVEN major currency pairs.
Compared to the crosses and exotics, the price moves more frequently with the majors, which provides more trading opportunities.
Minor Currency Pairs
Currency pairs that include any two of the major currencies except the U.S. dollar are known as cross-currency pairs or simply as the “crosses.”
Major crosses are also known as “minors.”
While not as frequently traded as the majors, the crosses are still pretty liquid and still provide plenty of trading opportunities.
Exotic Currency Pairs
An exotic currency is a currency from countries with developing or emerging markets.
Exotic currency pairs are made up of one major currency paired with the currency of an emerging economy, such as Brazil, Mexico, Chile, Turkey, or Hungary.
Basically, an exotic currency pair includes one major currency alongside an exotic currency.
For those of y’all who are really mesmerized by exotics, here’s a more comprehensive list.
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