Understanding Currency Pairs
Currency pairs are the foundation of forex trading. Understanding how they work is essential for success.
Types of Currency Pairs
Major Pairs
These include the US Dollar and account for 80% of trading volume:
- EUR/USD - Euro/US Dollar (most traded)
- GBP/USD - British Pound/US Dollar
- USD/JPY - US Dollar/Japanese Yen
- USD/CHF - US Dollar/Swiss Franc
- AUD/USD - Australian Dollar/US Dollar
- USD/CAD - US Dollar/Canadian Dollar
- NZD/USD - New Zealand Dollar/US Dollar
Minor Pairs (Crosses)
Pairs that don't include the US Dollar:
- EUR/GBP, EUR/JPY, GBP/JPY, EUR/AUD
Exotic Pairs
Major currency paired with developing economy:
- USD/TRY, USD/ZAR, USD/MXN
Reading Currency Quotes
If EUR/USD = 1.0850:
- 1 Euro = 1.0850 US Dollars
- Long EUR/USD: You expect Euro to strengthen
- Short EUR/USD: You expect Euro to weaken
Correlation
Some pairs move together (positive correlation) while others move opposite (negative correlation). Understanding this helps manage risk.
Tips for Beginners
- Start with major pairs (lower spreads)
- Focus on 1-2 pairs initially
- Learn each pair's characteristics
- Note the typical daily range