Forex trading involves simultaneously buying one currency and selling another in pairs. This guide explains how currency pairs work, the types of pairs you’ll encounter, and what influences their prices.
Forex trading, also known as foreign exchange trading or FX trading, involves simultaneously buying one currency while selling another. It’s the largest and most liquid financial market in the world, where currencies are traded in pairs through forex brokers or CFD providers.
Understanding Currency Pairs
Currencies are always quoted in pairs because when you trade forex, you’re exchanging one currency for another. For example, the euro against the U.S. dollar is written as EUR/USD, while the British pound versus the Japanese yen is shown as GBP/JPY.
When you trade a currency pair, you are either buying the base currency (the first one) and selling the quote currency (the second one), or vice versa. Think of each currency pair as a tug-of-war between two currencies, where the exchange rate reflects which currency is currently stronger.
What Are Exchange Rates?
An exchange rate is the price of one currency relative to another. Exchange rates constantly fluctuate depending on factors like economic data, geopolitical events, interest rates, and market sentiment.
Types of Currency Pairs
Currency pairs are grouped into three main categories based on their liquidity and market activity:
1. Major Currency Pairs
The major pairs always include the U.S. dollar (USD) on one side and are the most traded and liquid pairs globally. These seven pairs provide the most trading opportunities due to frequent price movements and high volume:
| Pair | Countries | Nickname |
|---|---|---|
| EUR/USD | Eurozone / United States | Euro Dollar |
| USD/JPY | United States / Japan | Dollar Yen |
| GBP/USD | United Kingdom / United States | Pound Dollar |
| USD/CHF | United States / Switzerland | Dollar Swissy |
| USD/CAD | United States / Canada | Dollar Loonie |
| AUD/USD | Australia / United States | Aussie Dollar |
| NZD/USD | New Zealand / United States | Kiwi Dollar |
Why trade majors?
Majors have the tightest spreads (lowest transaction costs) and the highest liquidity, meaning it’s easier to enter and exit trades without much price slippage.
2. Cross Currency Pairs (Minors)
Cross pairs or minor pairs include two major currencies but exclude the U.S. dollar. These pairs are also popular, with good liquidity and trading volume, but generally have wider spreads than majors.
Popular crosses involve currencies like the euro (EUR), British pound (GBP), and Japanese yen (JPY):
| Pair | Countries | Nickname |
|---|---|---|
| EUR/GBP | Eurozone / United Kingdom | Euro Pound |
| EUR/CHF | Eurozone / Switzerland | Euro Swissy |
| EUR/AUD | Eurozone / Australia | Euro Aussie |
| GBP/JPY | United Kingdom / Japan | Pound Yen |
Crosses give traders more variety and opportunities to diversify beyond USD-related pairs.
3. Exotic Currency Pairs
Exotic pairs combine one major currency with one from an emerging or smaller economy. Examples include:
| Pair | Countries | Nickname |
|---|---|---|
| USD/BRL | United States / Brazil | Dollar Real |
| USD/TRY | United States / Turkey | Dollar Lira |
| USD/ZAR | United States / South Africa | Dollar Rand |
Exotic pairs are less liquid and tend to have wider spreads, meaning higher transaction costs and more volatility. They are more sensitive to geopolitical and economic news in their respective countries.
Other Important Currency Groupings
G10 Currencies
The G10 are the ten most heavily traded and liquid currencies, including USD, EUR, GBP, JPY, AUD, NZD, CAD, CHF, NOK, and SEK.
The Scandies
Currencies from Scandinavian countries—Denmark (DKK), Norway (NOK), and Sweden (SEK)—are collectively called the “Scandies.” These currencies have unique historical ties and often behave similarly.
CEE Currencies
CEE stands for Central and Eastern Europe. Key currencies here include the Hungarian forint (HUF), Czech koruna (CZK), Polish zloty (PLN), and Romanian leu (RON).
BRIICS and BRICS+
BRIICS represents major emerging economies: Brazil, Russia, India, Indonesia, China, and South Africa. The expanded BRICS+ now includes countries like Saudi Arabia, Egypt, and UAE, reflecting growing global economic influence.
How Does Buying and Selling Currency Pairs Work?
When you trade forex, you always trade currency pairs like EUR/USD or GBP/JPY. Buying a currency pair means you buy the first currency (base) and sell the second (quote). Selling means the opposite.
Think of a currency pair as a “tug of war” — the exchange rate fluctuates depending on which currency is stronger at the moment.
For a detailed introduction to forex basics, check out our Forex Trading Basics Guide.
What Are Exchange Rates?
The exchange rate is the price of one currency relative to another. Rates constantly change due to economic events, geopolitical news, and market sentiment.
Learn more about what influences exchange rates in this Investopedia article on Exchange Rates.
Types of Currency Pairs
Major Currency Pairs
Major pairs always include the U.S. dollar and are the most traded globally. They offer high liquidity and tighter spreads, meaning lower trading costs.
| Currency Pair | Countries | Nickname |
|---|---|---|
| EUR/USD | Eurozone / United States | Euro Dollar |
| USD/JPY | United States / Japan | Dollar Yen |
| GBP/USD | United Kingdom / US | Pound Dollar |
| USD/CHF | US / Switzerland | Dollar Swissy |
| USD/CAD | US / Canada | Dollar Loonie |
| AUD/USD | Australia / US | Aussie Dollar |
| NZD/USD | New Zealand / US | Kiwi Dollar |
These pairs are explained in detail in our article on Major Forex Pairs.
Cross Currency Pairs (Minors)
Cross pairs exclude the U.S. dollar but include two other major currencies, like EUR/GBP or GBP/JPY. They are also liquid and offer good trading opportunities.
Learn more about cross pairs in Cross Currency Pairs Explained.
Exotic Currency Pairs
Exotic pairs combine a major currency with one from an emerging market, such as USD/BRL or USD/THB. These have lower liquidity, wider spreads, and higher volatility.
Read about the risks and opportunities of exotic pairs in Exotic Currency Pairs Guide.
Why Does This Matter for Traders?
Understanding buying and selling currency pairs helps you grasp how profits or losses happen in forex. When you expect the base currency to strengthen against the quote currency, you buy the pair. If you expect it to weaken, you sell the pair.
Quick Recap
- Buying a currency pair means buying the base currency and selling the quote currency.
- Selling a currency pair means selling the base currency and buying the quote currency.
- Major pairs include USD and are the most liquid.
- Crosses exclude USD but involve major currencies.
- Exotics involve emerging market currencies and are more volatile.
Related Articles on Trader.co.id
- How to Read Forex Quotes
- Top Forex Trading Strategies for Beginners
- Understanding Forex Market Hours
Frequently Asked Questions (FAQs)
Q: What is a currency pair?
A currency pair is the quotation of two different currencies, showing how much of the quote currency is needed to buy one unit of the base currency.
Q: Which are the major currency pairs?
EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, and NZD/USD.
Q: What are cross currency pairs?
Pairs that do not include the USD, such as EUR/GBP or GBP/JPY.
Q: How many currencies are traded globally?
There are about 180 recognized currencies worldwide, but most brokers offer around 70 currency pairs for trading.
Summary — What You Need to Know
- Forex trading involves trading currencies in pairs.
- Major pairs include USD and are the most liquid and popular for trading.
- Crosses exclude USD and offer alternatives with good liquidity.
- Exotic pairs involve emerging market currencies and are more volatile with higher spreads.
- Knowing the different currency groups helps you diversify and find the best trading opportunities.