Currency Pairs Explained
Master how to read and understand currency pairs—the foundation of every forex trade you'll ever make.
What Are Currency Pairs?
In forex, you never trade a single currency alone. You always trade one currency against another. This is called a currency pair.
For example, EUR/USD represents the Euro versus the US Dollar. When you see "EUR/USD = 1.1000", it means 1 Euro equals 1.10 US Dollars.
How to Read a Currency Pair
Base Currency (First)
EUR/USD
The currency you're buying or selling. The "base" of the transaction. Always has a value of 1.
Quote Currency (Second)
EUR/USD
The currency used to price the base. Shows how much of the quote currency equals 1 unit of the base.
Three Types of Currency Pairs
Forex pairs are categorized into three groups based on liquidity and trading volume:
1. Major Pairs (The Big 7)
Major pairs are the most traded currency pairs globally, all involving the US Dollar. They represent about 75% of all forex trading volume.
EUR/USD
Euro / US Dollar — "The Euro"
Most traded pair (24% of volume)
GBP/USD
British Pound / US Dollar — "Cable"
Volatile, popular with day traders
USD/JPY
US Dollar / Japanese Yen — "The Yen"
Sensitive to Asian markets
USD/CHF
US Dollar / Swiss Franc — "Swissie"
Safe-haven currency
AUD/USD
Australian Dollar / US Dollar — "Aussie"
Commodity currency (gold, iron)
USD/CAD
US Dollar / Canadian Dollar — "Loonie"
Linked to oil prices
NZD/USD
New Zealand Dollar / US Dollar — "Kiwi"
Agricultural exports influence
2. Minor Pairs (Cross Pairs)
Minor pairs (also called cross pairs) don't include the US Dollar. They're still liquid but have slightly wider spreads than majors.
EUR/GBP
Euro / British Pound
EUR/JPY
Euro / Japanese Yen
GBP/JPY
British Pound / Japanese Yen
EUR/AUD
Euro / Australian Dollar
GBP/AUD
British Pound / Australian Dollar
EUR/CAD
Euro / Canadian Dollar
3. Exotic Pairs
Exotic pairs include one major currency and one currency from an emerging or smaller economy. They have much wider spreads and lower liquidity.
USD/TRY
US Dollar / Turkish Lira
USD/ZAR
US Dollar / South African Rand
EUR/TRY
Euro / Turkish Lira
GBP/MXN
British Pound / Mexican Peso
USD/THB
US Dollar / Thai Baht
USD/HKD
US Dollar / Hong Kong Dollar
Which Pairs Should You Trade?
For beginners, we strongly recommend starting with major pairs, particularly these three:
EUR/USD
- ✓ Tightest spreads (0.1-0.5 pips)
- ✓ Highest liquidity
- ✓ Moderate volatility
- ✓ Predictable behavior
- ✓ Lots of analysis available
GBP/USD
- ✓ Higher volatility (more movement)
- ✓ Tight spreads (0.5-1 pip)
- ✓ Reacts strongly to news
- ⚠ Requires wider stops
- ⚠ More unpredictable
USD/JPY
- ✓ Respects technical levels
- ✓ Lower spreads (0.5-1 pip)
- ✓ Clear trending behavior
- ⚠ Sensitive to risk sentiment
- ⚠ Best during Asian session
Common Currency Nicknames
Traders use slang nicknames for currency pairs. Here are the most common:
| Currency Pair | Nickname | Origin |
|---|---|---|
| GBP/USD | Cable | From the transatlantic cable used for rate quotes in the 1800s |
| EUR/USD | Euro or Fiber | "Fiber" from fiber optic cables (newer tech than Cable) |
| USD/JPY | Gopher | Unclear origin, sometimes called "The Yen" |
| AUD/USD | Aussie | Australian Dollar |
| NZD/USD | Kiwi | New Zealand's national bird |
| USD/CAD | Loonie | The loon bird on the Canadian dollar coin |
| USD/CHF | Swissie | Swiss Franc |
Currency Pair Correlation
Some currency pairs tend to move together (positive correlation) or in opposite directions (negative correlation). Understanding this helps you avoid overexposure and diversify risk.
Examples of Correlated Pairs
Positive Correlation (Move Together)
- • EUR/USD and GBP/USD — Both rise when USD weakens
- • AUD/USD and NZD/USD — Both commodity currencies, similar economies
- • EUR/USD and AUD/USD — Often move together (risk-on sentiment)
⚠️ Trading multiple positively correlated pairs = essentially the same trade (double risk)
Negative Correlation (Move Opposite)
- • EUR/USD and USD/CHF — When EUR/USD rises, USD/CHF typically falls
- • GBP/USD and USD/JPY — Often inverse relationship
- • AUD/USD and USD/CAD — Both commodity currencies but inverted
💡 Can use for hedging or diversification strategies
Key Takeaways
- Currency pairs show the exchange rate between two currencies: base (first) and quote (second).
- Major pairs (EUR/USD, GBP/USD, USD/JPY, etc.) have the tightest spreads and highest liquidity—best for beginners.
- Minor pairs (cross pairs without USD) have wider spreads but offer diversification opportunities.
- Exotic pairs are risky with wide spreads and low liquidity—avoid until very experienced.
- Start with EUR/USD—it has the best conditions for learning: tight spreads, high liquidity, moderate volatility.
- Understand correlation to avoid doubling up on the same trade and to diversify properly.