What is Forex?: Currency Pairs - Buying And Selling

The foreign exchange market is the buying of one currency and selling of another currency at the same time. The actions of buying and selling are simultaneous to each other. A broker or dealer does the action of trading the currencies. The currencies are traded in pairs. An example of currency pairs can be the United States dollar (USD) and the European Euro (EUR.) This pair can be written down as USD/EUR.

All trading on the foreign exchange market is done in currency pairs, which you buy or sell.

Think of a contest of strength, a “tug of war,” between each currency. The force of pull a currency has on their side of the contest will depend on what the exchange rate is at the time of trading. The rates of exchange constantly fluctuate, each side pulling at each other.

Major Currency Pairs

The table below listed what are known to be the “majors” of currency pairs. Because we widely use the dollar around the world, each currency pair is comprised of the dollar and another frequently traded currency. These “major” pairs are the most widely traded currency pairs traded across the globe.

The Major Cross-Currency Pairs (or Minor Currency Pairs)

Cross-currency pairs are pairs of currency which do not contain the U.S. dollar (USD). They are just known as “crosses.” The major crosses can also be known as “minors.” The cross-currencies which are the most widely and actively traded are derived from the three major non-USD currencies are EUR, JPY, and GBP.

Euro Crosses

Yen Crosses

Pound Crosses

Other Crosses

Exotic Currency Pairs

Exotic currency pairs are explained as composition between one major currency with the currency of an emerging economy. For example, Denmark, Singapore, or Brazil. The table below shows a few different examples of exotic currency pairs.

It is worth your while to know and be familiar with the different exotic currency pairs listed in the table. Your foreign exchange broker may find that they could be beneficial for you. However, because these pairs are not as heavily and widely traded as the “majors” or “crosses”, the transaction costs which are associated with trading these exotic currency pairs is usually bigger.

You will want to factor these into your decision when trading exotic currency pairs. It isn’t unusual to see spreads which are two or three times bigger that the majors, like EUR/USD or USD/CHF.