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Currency pairs

Currency pairs

Dozens of trading years in the foreign exchange market were spent to create widely used terms in Forex. Currency pairs are seen as well-known abbreviations.

Example of a currency pair

A currency pair exists in the form of sequentially placed abbreviations of the respective currencies. For example, the most common currencies in the world are the euro (EUR) and US dollar (USD). Together they form the EUR/USD pair, which is read as Euro-Dollar. Buying or selling a currency pair means, respectively, purchase or sale of the euros for US dollars. The first currency in the pair is bought/sold for the second. If a pair is represented as USD/EUR, it enables buying/selling dollars for euros.

Base and quoted currency

Along with this, professional traders use slightly different terms — base and quoted currency. For example, Euro (first place) is a base currency in the most popular pair «Euro-Dollar» and US dollar is the quoted ione (second place).

It is important to note there is a considerable number of financial instruments where the U.S. currency is the basic one. For example, USD/JPY, USD/CHF, etc. In this case, it is worth stating there is a direct quotation — an amount of the quoted currency units in 1 U.S. dollar. If US dollar stays in second place in the pair, traders talk about the reverse quotation. It will be the price indicating an amount of dollars «fit» in the unit of the base currency.

The majors

There is such a term as «majors» in the Forex market This group of financial instruments consists of pairs, for example, JPY/USD, USD/CHF, EUR/USD, USD/GBP, AUD/USD, USD/NZD — they all have the American dollar. «Majors» are highly appreciated in the market because they are considered to be the most highly liquid financial instruments resistant to even the most substantial price changes.

Cross-rate

Along with this, there is a concept of «cross-rate» or minor currency pairs. This financial instrument is a combination of two currencies included in the major currency pairs except USD, for example, AUD/GBP, EUR/JPY, etc.

Exotic currency pairs

In the Forex market, there is a concept of the exotic currency pairs. It is a financial instrument, which is the least popular, and therefore,  tends to have low liquidity and large spread. The examples of such financial instruments are: CHF/HUF, EUR/PLN, etc.