What are currencies, why do they come in pairs, and that pair types are there?

What are currencies, why do they come in pairs, and that pair types are there?

Let's start with the basics: Forex, or FX, is a foreign exchange market, where you are dealing in currencies. They usually are abbreviated and contain three letters. To help you recognize them without learning every single name by heart, generally, and this is true for many currencies, the first two letters represent the country name, the third letter – the currency name. For example, USD stands for United States dollar, GBP is Great Britain pound, etc.

When you first start learning about Forex trading, you'll see that currencies are traded in pairs: EUR/USD, AUD/CHF, NZD/JPY. When placing an order on Forex, you are buying one currency and selling another at the same time, i.e., if you pick the EUR/USD pair to purchase, you are buying euro and selling the dollar and vice versa.

What are base currency and quote currency?

The base and quote currencies are parts of the FX pair – that's it! Forex currency pairs have a very simple structure: the first one is the base currency, and the second one is the quote currency, also known as the counter currency. The price you see in the market is always the current Forex base currency value against the quote currency value. For example, if EUR/USD rate is around 1.22, one euro amounts to ~1.22 US dollars ($1 and 22¢).

4currency-pairs.jpg

In a pair, one currency will be stronger than the other, although the currency strength is not a constant and can change due to certain reasons, usually – important financial events in the region. This is why it makes sense to compare the currencies and value them against each other.

Types of pairs: majors, crosses, and exotic

Most popular Forex pairs, also known as majors or major pairs, take up most of the trades on the market:

As you can clearly see, all Forex major currency pairs include USD and another very common currency. Together these amount to about 75% of all trades – hence the name.

The popular currency pairs that are made up of major currencies other than the US dollar are usually called cross pairs. These include some of the most traded currencies, like EUR, GBP, JPY. Before trading these currencies was possible directly, they had to be converted through the American dollar, which meant you made two transactions and could sustain losses. Despite the fact that USD is still extremely popular on the market, the spread of Forex trading made cross pair trading more common and way more convenient.

Another category of FX currency pairs is exotic. As a general rule, one currency used here is a popular one like USD, and the other one – a rare currency, usually a currency of a developing or emerging economy. These could be Mexican peso or Brazilian real.

So, why should these categories be important to me?

These categories usually reflect the liquidity and volatility of the currency pairs.

Liquidity shows how interested other traders are in this particular pair. Basically, more popular pairs (e.g., major pairs) have higher liquidity. You can easily buy and sell EUR/USD in large quantities and don’t risk high variance.

Volatility is the price range of value within a certain period (day, week, month, etc.), meaning that it shows how stable the currency is. It depends on the number of orders with this particular currency on the market, economic well-being in the region, and certain macroeconomic events. Currencies with lower liquidity have higher volatility and vice versa. Normally, the less popular the pair (e.g., exotic pair), the higher its volatility. High volatility can be a risk for traders, although it is likely to bring a bigger profit: it all depends on your trading style and the strategies you use.

To be a better trader, you should always be aware of these aspects.

Frequently asked questions

  • How to open an FBS account?

    Click the ‘Open account’ button on our website and proceed to the Personal Area. Before you can start trading, pass a profile verification. Confirm your email and phone number, get your ID verified. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading. 

  • How to withdraw the money you earned with FBS?

    The procedure is very straightforward.  Go to the Withdrawal page on the website or the Finances section of the FBS Personal Area and access Withdrawal. You can get the earned money via the same payment system that you used for depositing. In case you funded the account via various methods, withdraw your profit via the same methods in the ratio according to the deposited sums.

  • How to start trading?

    If you are 18+ years old, you can join FBS and begin your FX journey. To trade, you need a brokerage account and sufficient knowledge on how assets behave in the financial markets. Start with studying the basics with our free educational materials and creating an FBS account. You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed.

  • How to activate Level Up Bonus?

    Open Level Up Bonus account in web or mobile version of FBS Personal Area and get up to $140 free to your account.

Latest news

What Will Move the Market on September 27 – October 1?

Although Jerome Powell’s speech sounded hawkish on Wednesday, September 22, markets did not get scared and the main stock indices got bought back…

Turkey has Decreased Interest Rates, But is it a Buy?

Turkey’s central bank governor was at a crossroads: to hold interest rates and take a risk to be fired like it was for three governors before him, or to comply with the president, to cut rates, and to risk the market. Let’s find out, how to react to the rate cut.

Main Market Trends on September 23

The Fed can start tapering already this November, oil is rallying pushing the Canadian dollar up! Jump in to know more!

Deposit with your local payment systems

Be on top of your game

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Follow us on Facebook

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera