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Currency pairs in the foreign exchange market measure the value of one currency against another. The currency pair is split into the ‘base’ currency, which is the first named currency; and the secondary currency, which is called the ‘quote’ currency. The price displayed shows how much of the quote currency is required to buy one unit of the base currency.
The foreign exchange market, also called the currency or forex (FX) market, is the world’s largest and most liquid financial market in the world, with over $5 trillion worth of currencies traded globally every day. Forex trading is simultaneously buying one currency and selling another. The currency pair itself can be thought of as a single unit, an instrument that is either bought or sold. Examples include the euro and US dollar (EUR/USD), and the British pound and Japanese yen (GBP/JPY).
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The first currency in a forex pair is known as the base currency. This is the currency that a trader thinks will go up or down against the second currency in the pair. The second currency is known as the quote or counter currency. For example, if you buy the pound versus US dollar (GBP/USD), you're anticipating a rise in the pound at the expense of the US dollar. Profit and loss is normally expressed in the amount of the secondary currency in forex trading. Learn more in our how to trade forex guide.
Every currency pair has a bid and an offer price. This is the rate at which you can buy a currency, and the rate at which you can sell a currency. The price maker (usually a broker) gives you a rate at which they are willing to buy or sell a currency pair. Learn more about bid prices and ask prices.
The table below illustrates basic bid and offer prices.
| Currency pair | Quotation | Bid | Offer | Client buys | Client sells |
|---|---|---|---|---|---|
| EUR/USD | 1.1200/01 | 1.1200 | 1.1201 | 1.1201 | 1.1200 |
| GBP/USD | 1.5550/53 | 1.5550 | 1.5553 | 1.5553 | 1.5550 |
| EUR/GBP | 0.7210/11 | 0.7210 | 0.7211 | 0.7211 | 0.7210 |
There are many currency pairs for traders to choose from when placing a trade in the forex market. Major currency pairs are any pair that include the US dollar (USD), which currently holds the position of the largest economy in the world. Major pairs are the most widely traded currencies in the foreign exchange market. Here are the 7 major forex pairs that are considered to be the most popular across the world, all of which can be traded on using spread bets and CFDs:
The major pairs make up 75% of all forex trades. The majors are the most liquid and widely traded in the forex market. They make up the vast majority of all FX trades. Because these pairs have the largest volume of buyers and sellers, they also typically have the tightest bid (buy) and ask (sell) spreads. The spread is the difference between the buy and the sell price. Most traders would agree that the most profitable forex pairs to trade include the above seven major forex pairs.
In summary, major forex pairs are the most frequently traded currency pairs within the forex market. If you are interested in opening a live or demo account to trade on the underlying price movements of our currency pairs, read our article with suggestions for the most traded currency pairs.
The last decimal place to which a particular exchange rate is usually quoted is referred to as a pip (percentage in point). Some online forex providers typically quote no more than a fixed 1-point spread between the bid and offer on major forex pairs, and liquid cross rates in normal market conditions.
In currency trading, traders often look for currency pairs with the highest pip values, as they are very useful for short-term strategies, such as day trading. The value of each pip depends on your lot size and the specific currency that you are trading. Pips can also be useful for calculating the amount of leverage that a trader can use when foreign currency trading.
A pip is typically the fourth digit after the decimal point of the currency pair. So if the euro/dollar pair (EUR/USD) were to move from 1.0630 to 1.0631, that’s a one pip movement. The pip value in forex major pairs determines the amount of profit or loss that a trader will make per trade.
Let's use an example of spread betting to explain how currency pairs can be traded on, using the words buy/sell to represent long and short derivative positions.
The euro against the US dollar is a widely traded major forex pair. An example of a currency price is EUR/USD = 1.3560/1.35602 (sell rate/buy rate). In this instance, the euro is the base currency and the US dollar is the quote currency. To buy one unit of the base currency, the trader will have to pay 1.35602 in the quote currency - US dollars in this case. Conversely, if the trader wishes to sell one euro, they would receive 1.3560 US dollars.
A trader might buy the EUR/USD pair if they believe the euro will increase in value relative to the dollar. Buying the EUR/USD dollar pair is also referred to as ‘going long’. Alternatively, a trader can sell the EUR/USD pair - known as ‘going short’ - if they believe the value of the euro will go down relative to the dollar. Read more examples of short-selling currencies via spread betting and CFD trading.
Expecting major economic announcements? Our forex indices are a collection of related, strategically-selected pairs, grouped into a single basket. Trade on our 12 baskets of FX pairs, including the CMC USD Index and CMC GBP Index.
The foreign exchange market differs from other financial markets in that it has no physical location or central exchange. The whole market runs electronically, through a network of banks. It also runs continuously for 24 hours a day, five days a week. The forex market is the most popular financial market, traded by individual retail traders, banks and businesses alike. Learn more about how you can take advantage of forex trading hours.
Exchange rates fluctuate based on which currency is stronger at certain times. Traders seek out the best foreign exchange rate. These rates are supplied by global banks and updated in time periods of less than a second; the forex market is extremely fast-paced.
Commodities can also have an effect on currency pair prices. Commodity currencies are those from countries that have large quantities of commodities or other natural resources. The exchange rate of the currencies of these countries are tied to their respective export activities. This is because the strength of the economy can be highly dependent on the prices of their natural resources. Examples of these countries include Russia, Saudi Arabia and Nigeria.
A currency pair’s correlation refers to the similarities shared by various pairings. In the forex market, no single currency pair is traded completely independent of the others. An understanding of forex correlation pairs is helpful when managing a portfolio. For example, when trading the euro against the Japanese yen (EUR/JPY pair), a trader is effectively trading a derivative of the euro dollar (EUR/USD) and dollar yen (USD/JPY) pairs. Therefore, the EUR/JPY pair must be somehow correlated to one or both of these other currency pairs.
It is useful to get a better understanding of currency correlations and gain an insight into the relationship between currency pairs. Considering whether they are negatively or positively correlated, or if they are likely to move in the same direction, opposite directions, or completely randomly could be useful. These are all things to take into consideration when trading on currency pairs.
Forex trading offers frequent trading opportunities, as currency prices are constantly fluctuating in value against each other. FX trading allows traders to speculate on all the major currency pairs. The only limit to which currency pairs can be traded are the pairs and quantity offered by the trading platform individual traders choose.
The three main types of currency pairs are majors, minors (crosses) and exotics. The major currency pairs are often the most popular to trade, as they are the most liquid. That is to say these pairs have the highest trading volume. Minor currency pairs are ones which leave out the United States dollar, and they are normally less liquid. Examples include the euro and Swiss franc (EUR/CHF), Canadian dollar and Japanese yen (CAD/JPY), or pound sterling and Australian dollar (GBP/AUD). Cross pairs can provide trading opportunities when the majors are presenting less favourable conditions.
There are also exotic currency pairs. These are the least traded in the forex market, and are less liquid than the cross pairs. Prices can fluctuate greatly, and due to the lower volume of trades, spreads can be wide. There also tends to be less historical data on these pairs, so those relying on technical analysis may find information harder to come by.
What is the most predictable forex pair?
The movement in major forex pairs is often more predictable within the FX market, due to the vast amount of knowledge and research that traders have collected over the years. For example, EUR/USD is one of the most traded currency pairs in the world in terms of volume, and therefore, traders tend to have a better understanding of the pair, relative to more exotic crosses. See our guide to the most traded currency pairs.
What strategies can I use to trade on currency pairs?
There are several strategies you could use when trading on currency pairs, depending on the length of the trade, the specific pair and the size of your position. Check out our list of forex trading strategies to find one that suits your trading personality and goals.
What is the safest currency to trade?
There is no definite ‘safest currency’ to trade, due to the liquidity and often volatility of the forex market. However, some currencies are stronger in value than others and can act as a safe haven for investors in times of instability. Read our guide to the 16 strongest currencies in the world.
How many forex pairs are there?
We offer over 330 forex pairs to trade on our online trading platform, which include major, minor and exotic crosses. You can spread bet or trade CFDs on our currency pairs: visit our forex trading page for more information on costs, spreads and margin rates.
What is a good spread in forex?
A wide spread between currencies indicates volatility, whereas a narrow spread means that there is a smaller difference between the bid and ask price. Most traders prefer a tighter or narrower spread, as it indicates lower volatility but high liquidity. Our forex trading page has a breakdown of all spreads and margins that we offer on our currency pairs.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
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