Currency Pair

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See also Currency.

In the global foreign exchange market, currencies are always traded in pairs where one is bought and the other is sold. The format for quoting currency pairs is always AAABBB, where AAA is the base currency and BBB is the quote currency. In other words, a currency pair shows how much of the quote currency is needed to purchase one unit of the base currency. For example, EUR/USD 1.3214 means that 1.3214 U.S. Dollars are needed to purchase 1 Euro. Although there is no universal rule of thumb, the more "expensive" currency usually comes first.

Currency pairs are quoted accurate to 4 decimal places because forex spreads are usually very small and forex transactions usually involve very large amounts of currency. The last decimal place defines the smallest possible move that a currency pair can make and is called a pip, price interest point or percentage interest point. For example, if the EUR/USD changes from 1.3214 to 1.3215, it would have moved up by 1 pip. If it changes from 1.3214 to 1.3204, it would have moved down by 10 pips. On average, the EUR/USD - which is the most-traded major - moves by 100 pips per day.

Majors

Majors are the most liquid and widely-traded currency pairs in the world. Trades involving majors make up approximately 90% of trading in the global foreign exchange market. The 6 majors are:

  • EUR/USD, also known as the "euro"
  • GBP/USD, also known as the "cable"
  • USD/CHF, also known as the "swissie"
  • USD/JPY, also known as the "ninja"
  • USD/CAD, also known as the "loonie" or "beaver"
  • AUD/USD, also known as the "aussie"

Crosses

Crosses, or cross rates, are currency pairs that do not include the U.S. Dollar as the base or quote currencies. Some examples of crosses are:

Currency Pairs on Wikinvest