A currency pair is the quotation of two different national currencies in the foreign exchange (forex) market, showing the value of one currency relative to the other. In trading, currencies are always bought and sold in these pairs. The price indicates how much of the second currency is needed to buy one unit of the first currency.
Key concepts of a currency pair:
- Base Currency:
- The first listed currency (e.g., EUR in EUR/USD). It is the commodity being bought or sold.
- Quote Currency:
- The second listed currency (e.g., USD in EUR/USD). It is the currency used for payment and comparison.
- Exchange Rate:
- The price of the base currency expressed in units of the quote currency.
The 7 major currency pairs are EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CAD, USD/CHF, and NZD/USD. These pairs are the most frequently traded in the forex market because they include the U.S. dollar (USD) on one side and the major currencies from economies like Europe, Japan, and Canada.
- EUR/USD:
- The Euro and U.S. Dollar, also known as “The Fiber”.
- USD/JPY:
- The U.S. Dollar and Japanese Yen, also known as “Gopher”.
- GBP/USD:
- The British Pound and U.S. Dollar, also known as “Cable”.
- AUD/USD:
- The Australian Dollar and U.S. Dollar, also known as “Aussie”.
- USD/CAD:
- The U.S. Dollar and Canadian Dollar, also known as “Loonie”.
- USD/CHF:
- The U.S. Dollar and Swiss Franc, also known as “Swissie”.
- NZD/USD:
- The New Zealand Dollar and U.S. Dollar, also known as “Kiwi”.
These pairs are popular among traders because the large economies involved mean significant news and events can cause frequent price movements.