Currency Pairs in Forex

Forex involves buying and selling currencies in the foreign exchange market to make a profit. When trading forex, traders are not buying or selling actual physical currency, but rather a contract for the difference in the value of two currencies. This is done through currency pairs, where the value of one currency is quoted with another currency. This means that one currency is bought while another is sold. The exchange rate between two currencies determines the value of one currency.

For instance, if the exchange rate between the U.S. dollar and the Euro is 1.20, then one Euro equals 1.20 U.S Dollars.

Currency pairs are usually quoted with the base currency first, followed by the quote currency. The base currency is the first currency in the pair, and it is the currency that is being bought or sold. The quote currency is the second currency in the pair, and it is the currency that is being used to determine the value of the base currency.

When a trader purchases the EUR/USD currency pair, for instance, they are purchasing Euros and selling U.S. dollars.

The currency pairs traded in the forex market are divided into three categories: Majors, Crosses, and Exotics.

Major Currency Pairs

Major currency pairs are the most widely traded in the world. These pairs are considered the most stable and are generally more liquid than other currency pairs as they involve the US Dollar and the currencies of the world's largest economies, making them more attractive to traders.

Major currency pairs include:

EUR/USD

USD/JPY

GBP/USD

USD/CHF

USD/CAD

AUD/USD

NZD/USD

Cross Currency Pairs

Crosses pairs are typically less liquid and more volatile than major pairs, as these pairs do not include the US Dollar. Cross pairs are also less popular than major pairs and are typically traded by more experienced traders or those looking for higher returns.

Cross-currency pairs include:

EUR/GBP

GBP/JPY

AUD/CAD

CHF/JPY

AUD/JPY

Exotic Currency Pairs

Exotics are currency pairs that are less widely traded and less liquid than Majors or Crosses. These are currency pairs that involve one major currency and one currency from an emerging or smaller economy and are typically traded by experienced traders as they are considered to be riskier to trade.

Exotic currency pairs include:

USD/BRL

USD/MEX

USD/PLN

USD/HKD

USD/ZAR