Understanding Currency Pairs

Understanding Currency Pairs.

You know the advantages of trading forex, and you are excited to start trading. Now you need to learn what this market is all about. How does it work? What makes currency pairs move up and down? Most importantly, how can you make money trading forex?

Every successful forex investor begins with a solid foundation of knowledge upon which to build. Let’s start with currency pairs—the building blocks of the forex market—and how you will be using them in your trading.

In this section, we will explain the following to get you ready to place your first trade: 

  • What a currency pair is                                               
  • How you can trade a currency pair
  • What happens when you trade a currency pair 

Everything is relative in the forex market. The euro, by itself, is neither strong nor weak. The same holds true for the U.S. dollar. By itself, it is neither strong nor weak. Only when you compare two currencies together can you determine how strong or weak each currency is in relation to the other currency.

For example, the euro could be getting stronger compared to the U.S. dollar. However, the euro could also be getting weaker compared to the British pound at the same time.

Currencies always trade in pairs. You never simply buy the euro or sell the U.S. dollar. You trade them as a pair. If you believe the euro is gaining strength compared to the U.S. dollar, you buy euros and sell U.S. dollars at the same time. If you believe the U.S. dollar is gaining strength compared to the euro, you buy U.S. dollars and sell euros at the same time. You always buy the stronger currency and sell the weaker currency.

Currency pairs are typically divided into the following three major groups:

  • Major currency pairs   
  • Exotic currency pairs  
  • Currency crosses         

Major Currency Pairs

Most forex investors begin by investing in the major currency pairs, or the majors. The majors are those currency pairs that are comprised of the most important currency in the global markets—the U.S. dollar (USD)—crossed with one of seven other globally significant currencies—the euro (EUR), the Great British pound (GBP), the Swiss franc (CHF), the Japanese yen (JPY), the Canadian dollar (CAD), the Australian dollar (AUD) and the New Zealand dollar (NZD).

Take some time to learn the following major currency pairs because you will most likely be using them extensively:


(Euro / U.S. dollar)


(British pound / U.S. dollar)


(U.S. dollar / Swiss franc)


(U.S. dollar / Japanese yen)


(U.S. dollar / Canadian dollar)


(Australian dollar / U.S. dollar)


(New Zealand dollar / U.S. dollar)

Exotic Currency Pairs

The exotic currency pairs, or the exotics, are the currency pairs that are comprised of the most important currency in the global markets—the U.S. dollar (USD)—crossed with any currency that is not considered a major currency. Exotic currencies—like the Swedish krone (SEK), the South African rand (ZAR), or the Mexican peso (MXN)—are called exotic because they are associated with illiquid currencies that might not be available in a standard trading account.

Exotic currencies are usually lightly traded and have large bid/ask spreads. However, many so-called “exotic” currencies are becoming more popular and more and more investors are trading them.

Take a look at the following list of exotic currency pairs because you may be interested in diversifying your forex portfolio with a few uncorrelated currency pairs:


(U.S. dollar / Swedish krone)


(U.S. dollar / Norwegian krone)


(U.S. dollar / Danish krone)


(U.S. dollar / Hong Kong dollar)


(U.S. dollar / South African rand)


(U.S. dollar / Thai baht)


(U.S. dollar / Singapore dollar)


(U.S. dollar / Mexican peso)

Currency Crosses

Currency crosses, or the crosses, are the currency pairs that are comprised of any two currencies—so long as neither of them is not the U.S. dollar (USD). The euro (EUR) paired with the British pound (GBP) or the Australian dollar (AUD) paired with the Japanese yen (JPY) would be considered currency crosses.

The following is a list of some of the more popular currency crosses:


(British pound / Japanese yen)


(Euro / British pound)


(Australian dollar / Japanese yen)


(Euro / Canadian dollar)


(Canadian dollar / Japanese yen) 

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