What is a Currency Pair in Forex?
The foreign exchange (Forex) market is the largest financial market in the world. With a daily average volume of about $6.6 trillion and worth over $2.4 quadrillion as of 2021, Forex is a decentralised global market for trading currencies. All trading in the Forex market is done with currencies in pairs. The process involves you buying one currency and selling another with the goal of making a profit through their price differences. As of now, there are over 170 currency pairs in the Forex market. Since the entirety of Forex trading is based on the buying and selling of currency pairs, it is necessary to have an in-depth understanding of them and how they work in order to start Forex trading. Let’s take a look:
What is a currency pair?
A currency pair involves two different currencies, often separated by a forward slash (‘/’), in which the value of the first currency is quoted against the value of the second currency.
In Forex, currencies are written in pairs to compare the value of one currency (generally, the base currency) to another currency (the international currency). It indicates how much of one currency is required to buy a single unit of the other currency.
- Some of the most traded currency pairs include EUR/USD, USD/JPY, and GBP/USD.
- One of the most profitable currency pairs to trade is EUR/USD.
- The most fluctuating currency pair is AUD/JPY.
What are base and quote currencies?
Base currency: It is the first currency that appears in a Forex pair.
Quote currency: It is the second currency appearing in a Forex pair.
The value of the base currency is quoted against the value of the quote currency.
For example, if we take EUR/USD, the value of EUR will be quoted against the value of USD. This depicts how much USD is needed to purchase 1 EUR.
Forex traders buy the base currency and sell the quote currency in exchange. Similarly, you can buy currency pairs from different countries and also sell them in the Forex market. You can also convert them for international investment and trade.
What are the bid and ask prices?
Currency pairs have exchange rates that are based on their bid and ask prices.
- The bid price, also known as buying price, is the amount a broker (buyer) is willing to accept in exchange for a currency or asset.
- The ask price, also known as the offer price, is the amount a trader (seller) is willing to accept in exchange for a currency or asset.
- The difference between the bid price and the ask price of a currency pair is called a spread.
Let us look at an example with GBP/USD. Let’s say you want to exchange GBP for USD.
The exchange rate is 1.5, which means that one unit of USD is equal to 1.5 units of GBP, or $1 is required to purchase £1.5. In this case, GBP is the base currency, and USD is the quote currency.
If 1 GBP = 1.3 USD / 1.5 USD, that means that the higher USD price ($1.5) is the cost of purchasing a single GBP. If you wish to sell the GBP you already have, you can sell it at the lower price of $1.3.
How do currency pairs work?
Whenever you buy a currency pair, you use the base currency in order to sell the quote currency. However, you sell the base currency and get the quote currency in return when you sell the currency pair.
As per our example above, consider the currency pair price of GBP/USD = 1.5/1.6. Here, 1.5 is the ask price, and 1.6 is the bid price. In order to buy a unit of GBP, you will have to pay 1.6 USD. However, if you wish to sell GBP, you will receive 1.5 USD.
You may buy this currency pair if you have a notion of GBP increasing in value against USD in the future. Buying the pair means going long, whereas selling the pair means going short. The pair will be sold if you believe GBP will weaken against USD.
What are the major currency pairs in Forex?
The major currency pairs are the most liquid and heavily traded among all currencies. There are 7 major currency pairs in the Forex market:
The other types of important currency pairs are as follows:
- Minor currency pairs are currency pairs that do not include the USD. They are also called cross-currency pairs. Some examples are EUR/GBP, EUR/AUD, GBP/JPY, and more.
- Exotic currency pairs are a little tough to find since they include a major currency like the USD and a currency belonging to a developing country. Some of the exotic currency pairs are USD/HKD, AUD/MXN, GBP/ZAR and more.
How do you trade currency pairs?
Here is a stepwise guide on how you can trade currency pairs:
Open a Forex account
Once you open a Forex account with Blueberry Markets, you can deposit the funds and start trading currencies.
Choose a currency pair
There are more than 170 currency pairs you can trade, which includes major, minor, and exotic pairs.
Develop your Forex trading strategy
It is essential that you devise a Forex trading strategy before opening a position in a market.
Trade Forex with Blueberry Markets today
Currency pairs are an important part of Forex trading. Beginner traders must understand them completely before entering the market. With the proper research about the different country’s conditions and economic situations, a trader can make well-informed decisions in the market.
With Blueberry Markets, you can trade a vast number of currency pairs with complete reliability, scalability, and transparency.
Sign up for a trading account today to get started.
Hedging in Forex: How to Hedge Currency Risk
Forex hedging or currency hedging allows you to open multiple trade positions to offset any possible currency risk associated with your current position
What Is PIP in forex trading?
PIPs are essential in forex as they tell the traders about the size of profits or losses that can be made from a particular currency pair.
What Is Gap Trading?
Gaps in the Forex market help traders identify price movement clues, entry and exit signals, and trend reversals.
Top Swing Trading Indicators
Swing trading is all about profiting from market swings. It is a popular speculative strategy where traders tend to buy and hold their assets hoping to profit from expected market movement.
What are Support and Resistance Levels
Support and resistance levels in the Forex market allow traders to understand the market direction and predict future prices to consider in making trade decisions.
MT4 vs MT5: Which is Better?
MetaTrader is one of the most popular online trading platforms used globally and its two main versions are MetaTrader 4 and MetaTrader 5. But between MT4 and MT5, which is one best for you?
What is Forex?
The Forex market offers high liquidity and margin opportunities for you to trade and potentially profit off of exchange rates of currencies. With a daily volume of more than $6.6 trillion in 2019, it is the largest financial market in the world.
What is Margin trading?
Margin trading is one of the most common derivative strategies used in financial markets. It can also be considered tax-efficient as it allows you to choose the size of your wager and exempts profits earned from stamp duties and taxes.
What is Leverage in Forex
Leverage allows traders to hold large positions in the Forex market with fewer capital. With leverage trading, traders can borrow money from a broker and hold larger positions, which in turn could magnify returns or losses.
How To Set a Stop Loss Order in Forex Trading
A stop loss order is used to prevent extensive losses, especially during severe market dip situations. By placing a stop loss order, you can automatically close your position if the market moves against you.
MetaTrader 5: The Complete Guide
MetaTrader 5, the powerful automated trading platform, offers advanced tools for successful trading analysis and trades in the financial markets. Aside from Forex, the MT5 platform helps you trade Stocks, CFDs, and Futures.
What is MetaTrader 4: The Complete Guide to MT4
An advanced trading platform, MT4 has become a norm for seasoned Forex traders as it helps them execute their trades even when their machine is off. It comes with a user-friendly interface, numerous technical analysis tools for forecasting market patterns, real-time currency price data, and much more.
What are Long and Short Positions in Forex?
In Forex trading, you can take long or short positions based on expectations of the market rising or falling. Long or buy positions are maintained when traders expect currency pair prices to increase in the future.
What is a Spread in Forex?
A spread is a cost built into the buying and the selling price of all the currency pairs. In most cases, Forex spreads depend on your Forex broker.
How do you trade forex?
Many people want to get into Forex trading and make quick profits, but only a few even know how to start. While trading Forex online has now become easier than ever because of powerful platforms like Blueberry Markets, it can still feel incredibly overwhelming to get started with it.
When Can You Trade Forex?
In case you are wondering is Forex trading profitable, the short answer is yes. But many opt for Forex traders to make fast profits since Forex markets are operational 24 hours for five days a week.
Who trades forex?
Major players in the Forex market are financial institutions including commercial banks, central banks, money managers along with hedge funds. Many global corporations also trade in Forex to hedge currency risk.
Why trade forex?
As the largest financial market globally, Forex trading is one of the most popular investment avenues for many. The liquidity and huge trading volume make Forex trading an option worth exploring.
Forex Margin & Leverage
Forex trading usually provides much higher leverage compared to other financial instruments like stocks. This is one of the primary reasons why so many people are attracted to Forex, and more and more people have started to enter the Forex trading market.
Key steps to making your first trade in Forex
Making your first trade in Forex successfully requires in-depth knowledge about trading basics and Forex trading strategies. The learning curve to trading currencies can seem overwhelming and complex, but when you have the right information by your side, it can make the entire process all the more easier.
How is Forex regulated?
There are several Forex brokers in the Forex market, and amidst those thousands of Forex brokers, it can become nothing less than challenging for traders to find the best brokers.
When you hold a currency spot position overnight, the interest you either earn or pay is the rollover amount. Each currency has a different overnight interbank interest rate, and because you trade Forex in pairs, you also deal with two different interest rates.
Tips for Forex trading beginners
In terms of trading volume, the Forex market is the largest financial market in the world. It is also the only financial market that operates round the clock every day.
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