Glossary
Currency Pair
Two currencies quoted against each other — the base currency priced in terms of the quote currency.
Currency Pair, explained
Forex is always traded in pairs: EUR/USD, GBP/JPY, XAU/USD and so on. The first currency is the base and the second is the quote; the price tells you how much of the quote currency one unit of the base is worth. EUR/USD at 1.0850 means one euro costs 1.0850 US dollars.
Buying a pair means buying the base and selling the quote; selling the pair does the reverse. So going long EUR/USD is a bet the euro will strengthen against the dollar — you are never simply 'buying euros', you are buying them with dollars.
Pairs are grouped into majors (the most liquid, all involving the US dollar), minors or crosses (liquid pairs without the dollar, like EUR/GBP) and exotics (a major paired with an emerging-market currency, which carry wider spreads and thinner liquidity).
Because you are always long one currency and short the other, a forex trade is really a bet on the relative strength of two economies, not the absolute value of one. This is why the same news can push a currency up against one pair and down against another.
On the desk this framing matters for correlation: holding long EUR/USD and short USD/CHF, for example, is largely the same dollar bet expressed twice. Reading pairs as relationships rather than single instruments stops you from doubling the same risk by accident.
Frequently asked questions
- What is the difference between the base and quote currency?
- The base is the first currency in the pair and the quote is the second. The price shows how many units of the quote currency it takes to buy one unit of the base.
- What are major, minor and exotic pairs?
- Majors all include the US dollar and are the most liquid (EUR/USD, USD/JPY). Minors or crosses are liquid pairs without the dollar (EUR/GBP). Exotics pair a major with an emerging-market currency and have wider spreads.
Related terms
Pip
The smallest standard price move in a currency pair — the unit traders use to measure gains, losses and spreads.
ReadSpread
The gap between the bid and ask price — the built-in cost of opening a trade.
ReadLiquidity
The pools of resting orders price is drawn toward — typically clustered above highs and below lows.
ReadTrading Session
The major market hours — Asian, London and New York — that shape liquidity and volatility through the day.
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