What are Currency Pairs?
In the forex market, currencies are always traded in pairs. When you buy one currency, you simultaneously sell another. A currency pair shows the exchange rate between two currencies — how much of the quote currency you need to buy one unit of the base currency.
EUR/USD = 1.1050 means: 1 Euro costs 1.1050 US Dollars.
- Base currency: The first currency (EUR) — you buy or sell this
- Quote currency: The second currency (USD) — used as the measurement
The forex market trades over 180 currency pairs, but most volume concentrates in a handful of major pairs.
Major Pairs
Major pairs all involve the US Dollar and represent the most traded, most liquid, and lowest-spread pairs in the market:
| Pair | Nickname | Description |
|---|---|---|
| EUR/USD | "Fiber" | Euro vs US Dollar — most traded pair globally |
| GBP/USD | "Cable" | British Pound vs US Dollar |
| USD/JPY | "Gopher" | US Dollar vs Japanese Yen |
| USD/CHF | "Swissie" | US Dollar vs Swiss Franc |
| AUD/USD | "Aussie" | Australian Dollar vs US Dollar |
| USD/CAD | "Loonie" | US Dollar vs Canadian Dollar |
| NZD/USD | "Kiwi" | New Zealand Dollar vs US Dollar |
Minor Pairs
Minor pairs (also called cross pairs) do not include the US Dollar. They pair other major currencies against each other:
| Pair | Description |
|---|---|
| EUR/GBP | Euro vs British Pound |
| EUR/JPY | Euro vs Japanese Yen |
| GBP/JPY | British Pound vs Japanese Yen ("The Dragon") |
| EUR/CHF | Euro vs Swiss Franc |
| AUD/JPY | Australian Dollar vs Japanese Yen |
Cross pairs tend to have slightly wider spreads than majors and can be more volatile — especially GBP/JPY, which is known for its dramatic price swings.
Exotic Pairs
Exotic pairs combine a major currency with one from an emerging or smaller economy:
| Pair | Description |
|---|---|
| USD/TRY | US Dollar vs Turkish Lira |
| USD/ZAR | US Dollar vs South African Rand |
| EUR/TRY | Euro vs Turkish Lira |
| USD/MXN | US Dollar vs Mexican Peso |
| USD/SGD | US Dollar vs Singapore Dollar |
Currency Correlation
Correlation measures how two currency pairs move in relation to each other. Understanding correlation helps you avoid unintended double exposure.
Positive correlation (+1.0): Pairs move in the same direction
- EUR/USD and GBP/USD often move together (both rise when USD weakens)
Negative correlation (-1.0): Pairs move in opposite directions
- EUR/USD and USD/CHF typically move inversely
Common correlation examples:
| Pair 1 | Pair 2 | Correlation | Implication |
|---|---|---|---|
| EUR/USD | GBP/USD | +0.85 | Buying both doubles your USD exposure |
| EUR/USD | USD/CHF | -0.90 | Natural hedge |
| AUD/USD | NZD/USD | +0.88 | Very similar behavior |
| USD/JPY | AUD/JPY | +0.75 | Both fall when risk sentiment drops |
Practical rule: If you hold EUR/USD long AND GBP/USD long simultaneously, you are effectively trading two versions of the same trade. If USD strengthens, both lose. Be aware of this when building your portfolio of open trades.
Understanding currency pairs and their relationships is fundamental to developing a coherent trading strategy and managing overall portfolio risk effectively.