How Currency Pairs Work
In forex, you're always trading one currency against another. You can't just "buy euros" - you buy euros with something else. That "something else" is the second currency in the pair.
Anatomy of a Currency Pair
What this quote means:
1 Euro costs 1.0850 US Dollars
To buy €1,000, you'd pay $1,085
Buying vs Selling a Pair
📈 Buying EUR/USD (Going Long)
You believe the Euro will strengthen against the Dollar.
Buy at 1.0850 → Price rises to 1.0950 → You profit
Translation: You bought Euros with Dollars, Euros gained value, you made money when converting back.
📉 Selling EUR/USD (Going Short)
You believe the Euro will weaken against the Dollar.
Sell at 1.0850 → Price falls to 1.0750 → You profit
Translation: You sold Euros for Dollars, Euros lost value, you buy back cheaper.
Bid and Ask Prices
Every currency pair has two prices:
You always buy at the higher price (Ask) and sell at the lower price (Bid). The difference - the spread - is how brokers make money on each trade.
Major Currency Pairs
Major pairs all include the US Dollar and represent the world's largest economies. They account for ~75% of all forex trading volume.
| Pair | Nickname | Typical Spread | Daily Volume | Characteristics |
|---|---|---|---|---|
| EUR/USD | "Fiber" | 0.6-1.0 pips | ~28% | Most traded pair. Tightest spreads. Best for beginners. |
| USD/JPY | "Gopher" | 0.7-1.2 pips | ~13% | Second most liquid. Sensitive to risk sentiment. |
| GBP/USD | "Cable" | 1.0-2.0 pips | ~11% | Volatile. Active during London session. Brexit-sensitive. |
| USD/CHF | "Swissie" | 1.2-2.0 pips | ~5% | Safe-haven currency. Negative correlation with EUR/USD. |
| AUD/USD | "Aussie" | 1.0-1.8 pips | ~6% | Commodity currency. Tied to China, iron ore prices. |
| USD/CAD | "Loonie" | 1.2-2.0 pips | ~5% | Oil-correlated. Active during US session. |
| NZD/USD | "Kiwi" | 1.5-2.5 pips | ~2% | Dairy exports. Similar behavior to AUD. |
Why Trade Major Pairs?
Lowest Costs
Spreads as low as 0.6 pips. More of your profit stays with you.
High Liquidity
Easy to enter and exit. No slippage on normal-sized trades.
More Predictable
React more cleanly to technical analysis. Less random noise.
Better Analysis
More news coverage, research, and analysis available.
Deep Dive: EUR/USD - The King of Forex
What Moves EUR/USD?
- Interest rate differential - Fed vs ECB policy decisions
- Economic data - US NFP, Eurozone GDP, inflation reports
- Political events - Elections, EU stability, US policy changes
- Risk sentiment - In crisis, USD strengthens (pair falls)
Why It's Best for Beginners
EUR/USD has the tightest spreads, most liquidity, and cleanest price action. Technical levels are respected more often than exotic pairs. Almost all educational content uses EUR/USD examples - making it easier to apply what you learn.
Minor Currency Pairs (Crosses)
Minor pairs don't include the US Dollar but still involve major currencies. They're called "crosses" because historically, you had to convert through USD to trade them.
Popular Minor Pairs
Euro Crosses
- EUR/GBP - Euro vs British Pound
- EUR/JPY - Euro vs Japanese Yen
- EUR/CHF - Euro vs Swiss Franc
- EUR/AUD - Euro vs Australian Dollar
- EUR/CAD - Euro vs Canadian Dollar
Yen Crosses
- GBP/JPY - "The Beast" - Very volatile
- AUD/JPY - Risk sentiment barometer
- CAD/JPY - Oil + risk sentiment
- CHF/JPY - Safe haven vs safe haven
Pound Crosses
- GBP/CHF - Pound vs Swiss Franc
- GBP/AUD - Volatile, wide ranges
- GBP/CAD - Active during overlap
Minor Pairs: Pros and Cons
✅ Advantages
- Trade non-USD economies directly
- Different volatility profiles
- Diversification opportunities
- Some (like EUR/GBP) are very stable
❌ Disadvantages
- Wider spreads (2-4 pips typical)
- Lower liquidity than majors
- Can be more erratic
- Less analysis available
⚠️ GBP/JPY Warning
GBP/JPY is nicknamed "The Beast" for a reason. It can move 150-200 pips in a day - great for profits, devastating for losses. Many experienced traders won't touch it. As a beginner, stay away until you've mastered calmer pairs.
Exotic Currency Pairs
Exotic pairs combine a major currency with a currency from an emerging or smaller economy. Think USD/TRY (Turkish Lira), EUR/ZAR (South African Rand), or USD/MXN (Mexican Peso).
Common Exotic Pairs
| Pair | Countries | Typical Spread | Risk Level |
|---|---|---|---|
| USD/TRY | 🇺🇸 🇹🇷 US Dollar / Turkish Lira | 15-50+ pips | Extreme |
| USD/ZAR | 🇺🇸 🇿🇦 US Dollar / South African Rand | 80-150 pips | Very High |
| USD/MXN | 🇺🇸 🇲🇽 US Dollar / Mexican Peso | 30-80 pips | High |
| EUR/PLN | 🇪🇺 🇵🇱 Euro / Polish Zloty | 20-40 pips | Medium-High |
| USD/SGD | 🇺🇸 🇸🇬 US Dollar / Singapore Dollar | 3-8 pips | Medium |
Why Exotics Are Dangerous for Beginners
Massive Spreads
Where EUR/USD costs 0.8 pips, USD/ZAR might cost 100+ pips. You start every trade deep in the red.
Extreme Volatility
Emerging market currencies can move 5-10% in a day on political news. Your stop loss is meaningless against a gap.
Low Liquidity
Slippage is common. You might want to exit at one price but get filled much worse.
Swap Costs
Overnight fees can be massive. Holding USD/TRY short can cost you 20%+ annually in swaps.
💡 The Carry Trade Exception
Some traders use exotics for "carry trades" - earning interest rate differentials. For example, borrowing low-interest JPY to buy high-interest TRY. This is an advanced strategy with significant risks including currency depreciation that wipes out interest gains.
Currency Correlations
Currency pairs don't move independently. Understanding correlations helps you avoid doubling your risk and find confirmation for trades.
What Is Correlation?
Correlation measures how two pairs move in relation to each other:
Key Correlations to Know
🔗 Positive Correlations
These pairs tend to move in the same direction:
- EUR/USD & GBP/USD (~0.85) - Both move against USD
- AUD/USD & NZD/USD (~0.90) - Both Pacific commodity currencies
- EUR/USD & AUD/USD (~0.70) - Risk-on correlation
↔️ Negative Correlations
These pairs tend to move in opposite directions:
- EUR/USD & USD/CHF (~-0.95) - Nearly perfect inverse
- GBP/USD & USD/JPY (~-0.60) - Moderate inverse
- AUD/USD & USD/CAD (~-0.70) - Commodity currencies
Why Correlations Matter
⚠️ Avoid Double Exposure
If you're long EUR/USD AND long GBP/USD, you essentially have double USD exposure. If USD strengthens, both trades lose. You've doubled your risk without realizing it.
✅ Confirm Setups
See a buy signal on EUR/USD? Check GBP/USD - if it also looks bullish, that's confirmation. If GBP/USD looks bearish, your EUR/USD signal might be weak.
🛡️ Hedge Positions
Use negatively correlated pairs to hedge. Long EUR/USD and worried about a reversal? A long USD/CHF position provides some protection.
Which Pairs Should You Trade?
Beginners often make the mistake of trying to trade everything. Don't. Specialization beats diversification when you're learning.
Beginner Recommendation: Start With ONE Pair
Our Recommendation: EUR/USD
For your first 3-6 months, trade only EUR/USD. Here's why:
- Lowest spreads = lowest cost to learn
- Most educational content uses EUR/USD examples
- Cleaner price action, more predictable behavior
- Active during convenient hours (London/NY)
- You'll learn one pair deeply instead of many pairs poorly
Progression Path
Master one pair completely. Know its behavior, its spreads, its best trading times.
Add 1-2 more major pairs. Compare behaviors. Start understanding correlations.
By now, you know what suits your style. Some traders stick to 2-3 pairs forever. Others expand to crosses. Find what works for YOU.
Key Takeaways
Currency pairs = two currencies - Base (first) vs Quote (second). EUR/USD = Euros priced in Dollars.
Major pairs are best for beginners - Lowest spreads, highest liquidity, most predictable behavior.
Avoid exotics as a beginner - Massive spreads and extreme volatility will eat your account.
Understand correlations - Trading correlated pairs doubles your risk exposure.
Start with EUR/USD only - Master one pair before expanding. Depth beats breadth.