In our previous articles, we explained that trading forex means buying or selling one forex pair against another. It’s like the currencies are in a constant tug of war. This is caused by the rapid fluctuations of the exchange rate.

What is the exchange rate?

The exchange rate is the relative price of two currencies from different countries. The exchange rates fluctuate based on which currency is stronger at that moment. In forex trading, this exchange rate will be displayed in the market watch window of meta trader like this-

What is Base Currency & Quote Currency?

The first currency of a forex pair is called “Base Currency”. Base currency represents how much is needed to buy a single unit of the second currency or quote currency in a forex pair.

Similarly, the second pair is called “Quote Currency”. They are separated with a forward slash (“/”). Currency quotes is the amount of units of the quote currency you will need to exchange one unit of base currency.

Mostly, the dominant base currencies are-

BASE CURRENCY	FOREX PAIRS
USD	USD/CAD, USD/JPY, USD/CHF
EUR	EUR/USD, EUR/GBP, EUR/CHF, EUR/JPY, EUR/CAD
GBP	GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD

The base currency value is always 1. For example, 1 Dollar, 1 Pound, 1 Euro, etc. The calculation is-
1 unit of Base Currency can buy X units of the quote currency.
If the base currency is USD, such as USD/JPY, a quote of USD/JPY 88.48 means that one U.S. dollar is equal to 88.48 Japanese yen. Likewise, if the base currency is EUR, such as EUR/USD, then a quote of 1.3980 means that one Euro is equal to 1.3980 US Dollars.

Major Forex Pairs

These are widely traded pairs in the forex market. The major forex or currency pairs have the most liquid markets and are traded 24/5.
Liquidity is the level of activity or amount of active traders for a particular forex pair in the forex market. We will use this term quite a few times throughout the course. The most commonly traded currency pairs in 2023 were:

• EUR/USD (Euro/US Dollar)
• USD/JPY (US Dollar/Japanese Yen)
• GBP/USD (British Pound/US Dollar)
• USD/CHF (US Dollar/Swiss Franc)
• AUD/USD (Australian Dollar/US Dollar)
• USD/CAD (US Dollar/Canadian Dollar)
• EUR/JPY (Euro/Japanese Yen)

Minor and Exotic Forex Pairs

Currency pairs not associated with USD are minor currencies. They have higher spreads and lower liquidity than the majors. For example, EUR/GBP, GBP/JPY, EUR/CHF etc.

Exotic pairs are the currencies of emerging market, i.e. USD/SGD (U.S. Dollar/Singapore Dollar). They are not as liquid and has much wider spreads.For their low liquidity, exotic currency pairs can be highly volatile during forex economic news events. 

That’s a lot of information about currencies, right? But the bottom line is currencies or forex pairs are exchanged in the forex market. We hope with this article you have learned extensively about what is a currency pair and types of currency pairs available in the market.

This is what you learned today-

• Exchange rate is the relative price of two currencies from different countries
• The first currency of a forex pair is called “Base Currency” and  the second pair is called “Quote Currency”.
• The major forex pairs have the most liquid markets and are traded 24/5
• Forex pairs not associated with USD are minor currencies

---