Currency Pair
A currency pair is a quotation of two different currencies, with one currency being quoted against the other. It is the pricing and exchange rate relationship between two currencies. Trading in the foreign exchange market involves trading currency pairs, where one currency is bought while the other is simultaneously sold.
How Currency Pairs Work
Each currency pair has a base currency and a quote currency. The base currency is the first currency listed in the pair, while the quote currency is the second. For example, in the currency pair EUR/USD, the euro is the base currency, and the US dollar is the quote currency. This means that one euro can be exchanged for a certain amount of US dollars.
Currency pairs are quoted in terms of how much of the quote currency is needed to purchase one unit of the base currency. The exchange rate for a currency pair represents the amount of the quote currency needed to buy one unit of the base currency. For example, if the EUR/USD exchange rate is 1.15, it means that 1 euro can be exchanged for 1.15 US dollars.
Major Currency Pairs
There are several major currency pairs that are commonly traded in the forex market, including EUR/USD, USD/JPY, GBP/USD, and USD/CHF. These currency pairs are highly liquid and widely traded, making them popular choices among forex traders.
When trading currency pairs, traders aim to profit from changes in exchange rates. They buy a currency pair if they believe the base currency will strengthen against the quote currency, or sell a currency pair if they believe the base currency will weaken against the quote currency. The fluctuation in exchange rates presents opportunities for traders to make a profit through buying and selling currency pairs at the right time.
