In Forex trading, currencies are always traded in pairs. You cannot simply “buy dollars” — you must buy dollars against another currency, such as EUR/USD, GBP/USD or USD/JPY. Understanding how currency pairs are structured, categorised and priced is one of the most fundamental skills in trading.
How Currency Pairs Work
Every currency pair has two components:
- Base currency: The first currency listed (e.g. EUR in EUR/USD). This is the currency you are buying or selling.
- Quote currency: The second currency listed (e.g. USD in EUR/USD). This shows the price — how much of the quote currency is needed to buy one unit of the base currency.
If EUR/USD is trading at 1.0850, it means 1 Euro costs 1.0850 US Dollars. If you buy EUR/USD, you are buying euros and selling dollars. If you sell EUR/USD, you are selling euros and buying dollars.
The Three Categories of Currency Pairs
Major Pairs
Major pairs all include the US Dollar on one side. They are the most heavily traded pairs in the world, offering the tightest spreads, highest liquidity, and most reliable technical patterns. The seven major pairs are:
- EUR/USD — Euro / US Dollar (most traded pair globally, ~24% of daily volume)
- USD/JPY — US Dollar / Japanese Yen
- GBP/USD — British Pound / US Dollar (nicknamed “Cable”)
- USD/CHF — US Dollar / Swiss Franc (nicknamed “Swissie”)
- AUD/USD — Australian Dollar / US Dollar (nicknamed “Aussie”)
- USD/CAD — US Dollar / Canadian Dollar (nicknamed “Loonie”)
- NZD/USD — New Zealand Dollar / US Dollar (nicknamed “Kiwi”)
For beginners, starting with EUR/USD or GBP/USD is recommended due to their deep liquidity and abundance of analysis and educational resources.
Minor Pairs (Cross Pairs)
Minor pairs do not include the US Dollar but involve other major currencies. They are also called cross currency pairs or simply “crosses.” Common examples include:
- EUR/GBP — Euro / British Pound
- EUR/JPY — Euro / Japanese Yen
- GBP/JPY — British Pound / Japanese Yen (known for high volatility)
- EUR/AUD — Euro / Australian Dollar
- AUD/JPY — Australian Dollar / Japanese Yen
- GBP/CHF — British Pound / Swiss Franc
Minor pairs typically have slightly wider spreads than majors and can be more volatile. GBP/JPY in particular is notorious for large, fast moves and is generally not recommended for beginners.
Exotic Pairs
Exotic pairs combine a major currency with the currency of an emerging or smaller economy. Examples include:
- USD/TRY — US Dollar / Turkish Lira
- USD/ZAR — US Dollar / South African Rand
- USD/MXN — US Dollar / Mexican Peso
- EUR/TRY — Euro / Turkish Lira
- USD/SGD — US Dollar / Singapore Dollar
Exotic pairs have much wider spreads, lower liquidity, and are significantly more volatile than majors or minors. They are best avoided until you have substantial trading experience, as unexpected political or economic events in the home country can cause sudden, extreme moves.
How to Read a Currency Pair Quote
When you look at a Forex quote, you will typically see two prices:
- Bid price: The price at which your broker will buy the base currency from you (the price you sell at)
- Ask price: The price at which your broker will sell the base currency to you (the price you buy at)
The difference between the bid and ask is called the spread — this is your broker’s primary compensation. For EUR/USD, the spread might be just 0.1–1 pip with a good broker. For an exotic pair, it could be 20–50 pips or more.
Correlation Between Currency Pairs
An important concept that many beginners overlook is currency correlation — the degree to which two pairs move together or in opposite directions:
- Positive correlation: EUR/USD and GBP/USD tend to move in the same direction (both go up when the USD weakens)
- Negative correlation: EUR/USD and USD/CHF tend to move in opposite directions
If you are long EUR/USD and long GBP/USD simultaneously, you are essentially doubling your USD exposure — not truly diversifying. Understanding correlations helps you avoid unintentional risk concentration.
Which Pair Should You Start With?
For beginners, the recommendation is clear: start with EUR/USD. Here is why:
- Tightest spreads of any pair — minimises trading costs
- Highest liquidity — orders fill instantly at the quoted price
- Most analysed pair in the world — abundant free resources
- Responsive to key economic data — predictable behaviour around news events
- Moderate volatility — moves enough to trade profitably without extreme unpredictability
Once you are consistently profitable on EUR/USD, you can expand to other major pairs, then gradually to crosses if your strategy suits them.
Key Takeaway: Stick to major pairs when starting out. EUR/USD offers the best combination of tight spreads, high liquidity, and educational resources. Avoid exotic pairs until you have years of experience.