1. What is a Currency Pair?
A currency pair represents two currencies. You buy one while selling the other. Example: EUR/USD – Euro vs US Dollar.
2. Base and Quote Currency
- Base Currency: The first currency in the pair. You buy or sell this.
- Quote Currency: The second currency. Shows how much of this currency is needed to buy 1 unit of the base.
3. Major, Minor, and Exotic Pairs
- Major Pairs: Most traded, high liquidity (e.g., EUR/USD, USD/JPY).
- Minor Pairs: Less traded, usually exclude USD (e.g., EUR/GBP, AUD/NZD).
- Exotic Pairs: Include a major + emerging market currency (e.g., USD/TRY).
4. How to Read Currency Pairs
Price shows how much of the quote currency is needed for 1 unit of the base. If EUR/USD = 1.10, 1 Euro = 1.10 USD.
- Bid: Price buyers are willing to pay for base currency.
- Ask: Price sellers offer base currency.
- Spread: Difference between bid and ask prices.
Key Takeaways
- Currency pairs are the core of Forex trading.
- Major pairs offer best liquidity; exotic pairs are riskier.
- Understanding base vs quote currency is crucial.
- Bid, ask, and spread affect your trade execution.