Currency Pair
Currency pairs are quoted in a standardized format, where the first currency is called the base currency, and the second currency is called the quote currency. The exchange rate indicates how much of the quote currency is needed to purchase one unit of the base currency.
For example, in the currency pair EUR/USD, the euro (EUR) is the base currency, and the U.S. dollar (USD) is the quote currency. If the current exchange rate is 1.20, it means that 1 euro is equivalent to 1.20 U.S. dollars.
Currency pairs are categorized into three main types:
- Major Pairs: Major currency pairs are the most heavily traded and widely recognized pairs in the forex market. They involve currencies of major economies and include pairs such as EUR/USD, GBP/USD, USD/JPY, and USD/CHF.
- Minor Pairs: Minor currency pairs, also known as cross-currency pairs, do not involve the U.S. dollar as the base or quote currency. They represent currency pairs between major currencies other than the U.S. dollar. Examples include EUR/GBP, GBP/JPY, and AUD/CAD.
- Exotic Pairs: Exotic currency pairs consist of one major currency and one currency from an emerging or less liquid economy. They typically have lower trading volumes and higher spreads compared to major and minor pairs. Examples include USD/ZAR, USD/TRY, and EUR/TRY.
Currency pairs are actively traded in the forex market, and their exchange rates fluctuate based on various factors such as economic indicators, central bank policies, geopolitical events, and market sentiment. Traders and investors analyze currency pairs to make trading decisions and speculate on their future currency price movements.
It's important to consider factors such as volatility, liquidity, and trading hours when choosing currency pairs for trading. Different currency pairs exhibit varying levels of volatility and may have specific characteristics that suit different trading strategies and risk preferences.
