The forex (foreign exchange) market is where currencies are traded against one another. Unlike stock markets, where you buy shares of a company, in forex you are always exchanging one currency for another. This is why every forex transaction involves a pair — known as a currency pair.
Understanding how currency pairs work is the first and most essential concept in forex education. Everything else — chart reading, technical analysis, market structure — builds on top of this foundation.
What Is a Currency Pair?
A currency pair consists of two currencies: a base currency and a quote currency. They are written with the base currency first, followed by the quote currency, separated by a slash.
For example: EUR/USD
- EUR is the base currency (the Euro)
- USD is the quote currency (the US Dollar)
The price of the pair tells you how much of the quote currency is needed to buy one unit of the base currency. If EUR/USD is quoted at 1.0850, this means 1 Euro costs 1.0850 US Dollars.
Major, Minor, and Exotic Pairs
Currency pairs are typically grouped into three categories based on their liquidity and trading volume:
Major Pairs
Major pairs always include the US Dollar (USD) on one side and represent the most heavily traded pairs in the world. Because of high trading volume, major pairs tend to have tighter spreads and more predictable price behaviour, making them commonly used for educational and analytical study.
Examples of major pairs: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, USD/CAD, NZD/USD
Minor Pairs (Cross Pairs)
Minor pairs — also called cross pairs — do not include the US Dollar. They are formed between two other major currencies. Examples include EUR/GBP, GBP/JPY, and EUR/JPY. Cross pairs generally have slightly wider spreads than majors and can exhibit different price movement characteristics.
Exotic Pairs
Exotic pairs consist of one major currency paired with the currency of an emerging or smaller economy — such as USD/TRY (US Dollar vs Turkish Lira) or EUR/ZAR (Euro vs South African Rand). These pairs typically have lower liquidity and wider spreads, making them more complex to study and analyse.
For educational study: Most forex education curricula begin with major pairs — particularly EUR/USD — because they have the most published historical data, the tightest spreads, and the most comprehensive market commentary available. It is the most widely studied pair in the world.
Reading a Currency Pair Quote
When you see a currency pair quote, you will typically see two prices displayed: the bid and the ask.
- Bid price: The price at which the market will buy the base currency from you
- Ask price: The price at which the market will sell the base currency to you
- Spread: The difference between the bid and ask price — this represents a transaction cost
For example, if EUR/USD shows Bid: 1.0848 / Ask: 1.0850, the spread is 2 pips. Understanding the bid-ask spread is an important part of understanding how the forex market operates as a mechanism.
What Are Pips?
A pip (percentage in point) is the smallest standardised unit of price movement for a currency pair. For most pairs, one pip equals a movement of 0.0001 in the price. For JPY pairs, one pip equals 0.01.
Pips are the standard unit of measurement when discussing price changes in forex education and analysis. Understanding pips is essential before studying any chart-based concepts.
What Causes Currency Pairs to Move?
From an educational standpoint, currency pair prices are influenced by a combination of factors including macroeconomic data releases, central bank interest rate decisions, geopolitical events, trade flows, and overall market sentiment. The study of these fundamental forces forms an entire branch of forex education — known as fundamental analysis — which we will cover in a separate guide.
This article is part of our Market Fundamentals series. Continue learning with our next guide on reading candlestick charts.