If you are starting with currencies, your first question is probably What Are Forex Pairs? In forex, prices always appear as pairs because each trade buys one currency and sells another at the same time. That is why you see EUR USD, GBP JPY, or USD TRY rather than stand alone prices. In this guide you will master base and quote, bid and ask, direct and indirect quotes, and how news and liquidity shape spreads. The goal is to give you practical knowledge that is easy to apply on a trading platform.
What Are Forex Pairs?
Forex pairs show the price of one currency expressed in another. The first symbol is the base currency and the second is the quote currency. If EUR USD equals 1.3000, one euro costs 1.3000 U.S. dollars. In live markets, this quote updates constantly as buyers and sellers interact. Three facts help frame the topic. Pairs use three letter ISO codes such as EUR, USD, JPY, GBP, CHF, AUD, CAD, and NZD. The U.S. dollar is the most common side of a trade, which is why most major pairs include USD. Liquidity varies by category so majors usually offer the tightest spreads while exotics often have wider spreads and more slippage.Understanding Currency Pairs
A currency pair is written AAA BBB. For example, EUR USD uses EUR as the base and USD as the quote. The displayed number tells you how many units of the quote you need to buy one unit of the base. This simple idea drives pip calculations, position sizing, and trading costs. Authorities often define an exchange rate as the rate at which one currency can be exchanged for another. You will also see that the euro, dollar, yen, and pound are among the most traded currencies. Knowing this helps you choose liquid markets when you are new.Base Currency vs. Quote Currency
The base currency is the one unit you are pricing on the left side of the pair. The quote currency is the amount required to buy that one unit on the right side. With GBP USD at 1.3000, one British pound costs 1.3000 U.S. dollars. If the quote rises to 1.3200, the pound strengthened against the dollar. If it falls to 1.2800, the pound weakened. Some education materials refer to American terms and European terms for quoting conventions. Regardless of the label, your task is to read the pair in a consistent way so that you always know which side you are buying or selling.What Are Major Currency Pairs
Majors usually mean USD paired with another top global currency. A common set includes EUR USD, USD JPY, GBP USD, USD CHF, AUD USD, USD CAD, and NZD USD. These pairs are popular because of deep liquidity and typically tight spreads. Many beginners start here.What Are Minor Currency Pairs
Minors, also called crosses, exclude USD but involve widely traded currencies. Examples include EUR GBP, EUR JPY, GBP JPY, and EUR AUD. Liquidity is decent, although spreads are often wider than on majors. Activity rises during London hours and during the London New York overlap.What Are Exotic Currency Pairs
Exotics combine a major currency with one from a smaller or emerging economy. Examples include USD TRY, USD ZAR, USD THB, and EUR HUF. These pairs can deliver large moves, but they often have wider spreads and lower depth. News from the local economy can cause abrupt price changes, so risk controls matter more.How Do Forex Pairs Work
Every forex trade is simultaneous. You buy one currency and sell the other. If you go long EUR USD, you are buying euros and selling dollars. If you go short, you are selling euros and buying dollars. The exchange rate always expresses how many units of the quote currency you need to obtain one unit of the base currency.The Role of Exchange Rates
Exchange rates reflect supply and demand that is influenced by interest rates, inflation, growth, and risk appetite. Central bank policy can be decisive through rate changes, balance sheet actions, and forward guidance. As expectations evolve, the pair value adjusts in real time.Why Do Currency Values Fluctuate
Economic indicators such as GDP, employment, inflation, and manufacturing surveys change expectations for future interest rates. Higher relative rates tend to support a currency when other factors are stable. Political stability attracts capital. Trader positioning and sentiment can amplify short term moves. Trade balances and commodity prices can also drive currencies that are sensitive to specific exports.How to Read a Forex Quote
A platform might show EUR USD 1.1250 1.1252. The first figure is the bid and the second is the ask. You can sell the base at the bid and you can buy the base at the ask. The difference is the spread. In this example the spread equals 0.0002 which is two pips. That difference is a visible part of your transaction cost.Direct vs Indirect Forex Quotes
A direct quote states domestic currency per one unit of foreign currency. In the United States you might see 1 EUR equals 1.10 USD. An indirect quote states the amount of foreign currency needed to buy one unit of domestic currency. For example, 1 USD equals 0.91 EUR. These are reciprocals. You should be comfortable with both, because local media or different platforms may use either convention.Interpreting Forex Quotes in Trading
If you expect the base currency to strengthen against the quote, you would buy the pair. If you expect the base currency to weaken, you would sell the pair. Before you trade, check the spread size, typical volatility, the news calendar, and which session is providing the most liquidity.Commonly Traded Forex Pairs with Context
EUR USD usually offers the deepest liquidity and is very sensitive to the difference between European Central Bank policy and Federal Reserve policy. USD JPY often reflects the difference between U.S. and Japanese yields and is active during the Asian session. GBP USD responds to United Kingdom data and broader risk tone. USD CHF is often watched as a defensive or risk off indicator during market stress.Pips, Pipettes and Position Sizing with Careful Math
A pip is the standard unit of price change. It is usually 0.0001 for most pairs and 0.01 for JPY pairs. A pipette is one tenth of a pip. For most pairs that is 0.00001. For JPY pairs that is 0.001. Example for EUR USD Quote equals 1.1250. One pip is 0.0001. A standard lot is 100,000 units of the base currency. The pip value is about 10 U.S. dollars per standard lot because 0.0001 multiplied by 100,000 equals 10. Example for USD JPY Quote equals 149.80. One pip is 0.01. A standard lot is 100,000 U.S. dollars since USD is the base. The pip value is about 1,000 yen per pip. Converted to dollars, divide by price. One thousand divided by 149.80 is about 6.68 dollars per pip. Broker contract specs can vary. Always check your platform for exact pip values.
Calculating Trading Costs with a Spread Only Example
Suppose your platform shows EUR USD 1.1250 1.1252 which is a two pip spread. You buy one standard lot at 1.1252. If you close immediately at the bid of 1.1250, your spread cost is two pips times 10 dollars per pip which equals 20 dollars. If price later prints 1.1260 1.1262, you could sell at 1.1260 for a positive eight pips which equals 80 dollars before any commissions or financing.Liquidity Across Sessions
- London session runs roughly 08:00 to 16:00 UK time and typically offers the deepest liquidity. It overlaps with Asia early and with New York at midday in London.
- New York overlap from about 13:00 to 17:00 UK time is often when spreads are tightest and moves are largest in EUR USD and GBP USD.
Using Forex Charts and Tools
- Candlestick charts help you visualize the open, high, low, and close of each period so you can identify impulsive and corrective moves.
- Moving averages smooth out noise and can act as dynamic support and resistance during trends.
How News Affects Forex Prices
Interest rate decisions and central bank guidance often move the largest pairs. Inflation data, jobs data such as non farm payrolls, GDP reports, and purchasing manager indexes can all create fast moves. When surprises hit, spreads can widen and orders can fill at worse prices than expected. Plan entries and stops with the calendar in mind.Risk Disclosures and Staying Safe
Leverage can magnify gains and losses. A small price change can produce a large profit or a large loss when position size is high. Retail forex is a frequent target of fraud. Be cautious of guaranteed return claims and unregistered firms. If a promotion hides risk warnings or does not show the percentage of losing accounts for CFDs and forex, treat that as a red flag. Always verify the regulatory status of your broker and understand the product you are trading.What Are Forex Pairs Examples
Example A. Reading EUR USD The screen shows 1.1048 1.1050. You want to go long, so you buy at 1.1050. Later the screen shows 1.1062 1.1064. You exit at 1.1062 for a gain of 12 pips. On a standard lot, that is roughly 120 dollars before fees. Example B. Reading USD JPY The screen shows 149.76 149.78. You expect the yen to strengthen and the pair to move down, so you sell at 149.76. Price falls to 149.20 149.22. You buy back at 149.22 for 54 pips. At roughly 6.7 dollars per pip for a standard lot, that is about 361.80 dollars before fees.Choosing Pairs to Trade
Trend followers often begin with EUR USD or USD JPY because trends can be cleaner and spreads are usually tight. Range traders may favor EUR GBP or AUD NZD during quieter periods. If you trade events, stay with majors during the London New York overlap for the best execution conditions.Avoiding Common Mistakes
Many beginners confuse base and quote. Prevent this by saying out loud which side you are buying or selling. Others ignore the spread, which can eat a large share of small targets. Trading right into major news can lead to unexpected slippage. Sizing too large is the fastest route to avoidable losses. Use volatility based position sizing and respect stop loss levels.Conclusion and Next Steps
Understanding what are forex pairs gives you a strong foundation. You can now identify base and quote, read bid and ask prices, estimate spreads and pip values, and plan around session liquidity and news. Start with majors, test ideas on a demo account, track a news calendar, and build a repeatable checklist. Consistency and risk control will do more for your results than any indicator.FAQ’s
What are forex pairs in one sentence?
They are the price of one currency expressed in another, and you always trade them as a pair of base and quote.
Are majors always better for beginners?
Usually they are, because liquidity and tight spreads help keep costs predictable.
What is a good spread?
It depends on the pair and the session. EUR USD often shows one to two pips during the most liquid hours, while exotics can be ten pips or more.
Is EUR USD really the most traded pair?
Yes in most surveys. The exact share can change with market conditions, but EUR USD consistently ranks at the top.
Do I need to know both direct and indirect quotes?
Yes. Different regions and platforms may use either convention, and they are reciprocals of each other.
Is forex safe for new traders?
Forex carries high risk. Use small position sizes, avoid unrealistic promises, and verify regulation and fees before funding any account.
