What is a Currency Pair?

What is a Currency Pair?
In Forex trading you have to buy one currency and sell another as I explained earlier. Now you may see that we always need two involved with currencies for trading. Let's take EUR/USD for an example. In the Forex market you may see that the market price of EUR/USD is 1.0751 now. What it does mean? As a simple explanation I can tell that you need 1.0751 USD to buy one EUR. But you need to know that real meaning of this is not that. Before you understand the real meaning you need to understand what is a "LOT" in Forex trading. Sounds not good? Don't worry I will explain everything in the future.

Buying and Selling
In Forex trading you cannot buy currencies directly. They are traded through a broker or dealer, and are traded in pairs; for example the euro and the U.S. dollar (EUR/USD) or the British pound and the U.S dollar (GBP/USD).

I think you know what is happening in a “tug of war”. The stronger one will win the war. Now imagine one side of the rope is USD and other side is EUR. If EUR is strong EUR will win the war and the market price of EUR/USD pair will go UP. If USD is strong USD will win the war and the market price of EUR/USD pair will go DOWN. I think you understood.
What are the Major Currency Pairs?
As I explained in major currencies the majors are the most liquid and widely traded currency pairs in the world. Look at the table below. All of these pairs contain the U.S. dollar (USD) on one side and are the most frequently traded.

Minor Currency Pairs
Minor currency pairs also known as Cross-currency pairs are the currency pairs that don’t contain the U.S. dollar (USD). Major crosses are also known as “minors.” EUR, JPY, and GBP are the most actively traded crosses which are coming from the three major non-USD currencies.

Euro Crosses
Currency Pair Countries FX Geek Speak
EUR/CHF Euro zone / Switzerland “euro swissy”
EUR/GBP Euro zone / United Kingdom “euro pound”
EUR/CAD Euro zone / Canada “euro loonie”
EUR/AUD Euro zone / Australia “euro aussie”
EUR/NZD Euro zone / New Zealand “euro kiwi”

Yen Crosses
Currency Pair Countries FX Geek Speak
EUR/JPY Euro zone / Japan “euro yen” or “yuppy”
GBP/JPY United Kingdom / Japan “pound yen” or “guppy”
CHF/JPY Switzerland / Japan “swissy yen”
CAD/JPY Canada / Japan “loonie yen”
AUD/JPY Australia / Japan “aussie yen”
NZD/JPY New Zealand / Japan “kiwi yen”

Pound Crosses
Pair Countries FX Geek Speak
GBP/CHF United Kingdom / Switzerland “pound swissy”
GBP/AUD United Kingdom / Australia “pound aussie”
GBP/CAD United Kingdom / Canada “pound loonie”
GBP/NZD United Kingdom / New Zealand “pound kiwi”



Other Crosses
Pair Countries FX Geek Speak
AUD/CHF Australia / Switzerland “aussie swissy”
AUD/CAD Australia / Canada “aussie loonie”
AUD/NZD Australia / New Zealand “aussie kiwi”
CAD/CHF Canada / Switzerland “loonie swissy”
NZD/CHF New Zealand / Switzerland “kiwi swissy”
NZD/CAD New Zealand / Canada “kiwi loonie”


The chart below shows the Currency Distribution in the FX Market. The currencies in the chart are the seven most actively traded currencies.

Now you may noticed that U.S. dollar (USD) plays a huge role here because it is one half of all major currency pairs so don’t you need to pay attention to the U.S. dollar (USD)? Not only Forex traders but also all investors, businesses pay attention on U.S dollar.  Why USD is so much popular in the world? Here are the reasons
 

• The US economy is the largest economy in the world and also has the largest and most liquid financial markets in the world.
• The United States has a super stable political system and world’s best military superpower.
• The U.S. dollar is used as the medium of exchange for many cross-border transactions. For example. If you are living in Singapore and you need to import something from China you cannot pay your Singapore dollar directly to China. You have to exchange Singapore dollar to US dollar and pay with US dollar to china.
As a summary of the lesson you should know following thins.
1. What is a currency pair and what is buying and selling
2. What are major and minor currency pairs
3. The importance of US dollar in Forex market