What Is a Currency Pair?
A currency pair is the quotation of two currencies together. EUR/USD is a currency pair—it represents the value of one euro in US dollars.
In forex, you never buy or sell just euros or just dollars. You always trade pairs. To buy euros, you must sell something else (usually dollars). This is the core of forex trading.
The pair notation always follows the same format: BASE/QUOTE.
- EUR/USD: Buy EUR, sell USD
- GBP/JPY: Buy GBP, sell JPY
- USD/CAD: Buy USD, sell CAD
Major Currency Pairs
The most liquid and widely traded pairs:
- EUR/USD - Most liquid pair globally, tightest spreads, highest volume
- GBP/USD - British pound vs. dollar, high volatility, large moves
- USD/JPY - Dollar vs. yen, heavily traded, watch overnight (Tokyo session)
- USD/CHF - Dollar vs. Swiss franc, defensive safe-haven pair
- AUD/USD - Australian dollar, risk-on indicator
- USD/CAD - Dollar vs. Canadian dollar, correlated with oil prices
- NZD/USD - New Zealand dollar, risk-on, high carry
All major pairs include the US dollar on one side. They have the tightest spreads (often 1-2 pips), highest liquidity, and most reliable price action.
Minor Currency Pairs (Crosses)
Currency pairs without USD:
- EUR/GBP - Two major economies trading
- EUR/JPY - Major carry trade pair
- GBP/JPY - Strong volatility, big moves
- EUR/CHF - Two safe-haven economies
- AUD/JPY - Popular carry trade
Minors have slightly wider spreads (2-4 pips) and less liquidity than majors. But they’re still reliable enough for most traders.
Exotic Currency Pairs
Pairs including emerging market or smaller developed economy currencies:
- USD/TRY - Turkish lira, volatile, high risk
- USD/BRL - Brazilian real, commodity-linked
- USD/ZAR - South African rand, emerging market
- USD/SGD - Singapore dollar, stable
- USD/HKD - Hong Kong dollar, pegged
- USD/MXN - Mexican peso, North American
Exotics have much wider spreads (5-20 pips or more), lower liquidity, and less reliable execution. They also tend to have higher volatility and are subject to political/economic shocks. Trade exotics only if you understand the risks.
Price in a Currency Pair
The price quoted always represents the value of the base currency in the quote currency.
EUR/USD = 1.0850
This means 1 euro costs 1.0850 US dollars.
GBP/JPY = 189.50
This means 1 British pound costs 189.50 Japanese yen.
USD/CAD = 1.3650
This means 1 US dollar costs 1.3650 Canadian dollars (note: this is inverted logic, dollar-based pairs use inverse notation).
Reading a Currency Pair: Profit Direction
Long (Buy) Position:
You buy EUR/USD at 1.0850. You own 1 euro for every 1.0850 USD you spend. When price rises to 1.0950, you profit (each euro is now worth more dollars). You sell at profit.
Short (Sell) Position:
You sell EUR/USD at 1.0850. You’re short euros, long dollars. When price falls to 1.0750, you profit (you can buy back EUR at lower cost). You buy back at profit.
This is true for all pairs. Long = profit when price rises. Short = profit when price falls.
Pip Value and Lot Size Across Pairs
A pip means different things depending on the pair:
- EUR/USD: 1 pip = $0.0001 per unit traded (1 pip on 1 lot = $10)
- GBP/USD: 1 pip = $0.0001 per unit (1 pip on 1 lot = $10)
- USD/JPY: 1 pip = $0.01 per unit (1 pip on 1 lot = $1,000… wait, this is different!)
- USD/CHF: 1 pip = $0.0001 per unit (1 pip on 1 lot = $10)
This is why position sizing varies by pair. A 50-pip stop-loss means different dollar risk on USD/JPY vs. EUR/USD.
Correlation Between Pairs
Currency pairs are not independent. Some move together (correlated), others move opposite:
- EUR/USD and GBP/USD: Highly correlated (0.90), both depend on USD strength
- EUR/USD and USD/JPY: Negatively correlated (-0.70), opposite movements
- AUD/USD and NZD/USD: Highly correlated (0.85), similar economies and commodities
Understanding correlation helps you avoid over-concentration risk. Don’t trade 5 highly correlated pairs—you’re not diversified, just multiplying exposure.
How to Choose Which Pairs to Trade
Beginner: Start with EUR/USD, GBP/USD, and USD/JPY. Highest liquidity, most predictable, lowest spread cost.
Intermediate: Add minor pairs like EUR/GBP and AUD/USD. Understand correlation between your pairs.
Advanced: Selective use of exotics, but only if you have an edge in that pair and understand the extra risks.
Rule: Don’t trade pairs you don’t understand. If you don’t know what moves AUD/USD (commodity prices, interest rates, risk sentiment), don’t trade it.
PipJournal Works Across All Pairs
PipJournal tracks your performance across every currency pair you trade, automatically calculating pip values, lot sizes, and correlation. Over time, you’ll discover which pairs fit your strategy best—maybe you’re profitable on EUR/USD but consistently lose on GBP/JPY. PipJournal’s AI reveals these patterns, helping you focus on the pairs where you have genuine edge.
