Loading the player...

What is 'Currency Pairs'

Currency pairs are two currencies with exchange rates that are traded in the retail forex market. All dealing within the forex market, whether selling, buying, or trading, will take place through currency pairs.

BREAKING DOWN 'Currency Pairs'

The rates of exchange between foreign currency pairs are calculated as the factor by which a base currency is multiplied to yield an equivalent value or purchasing power of foreign currency. The currency exchange rates of foreign currency pairs float, meaning that they change continually based on a multitude of factors. The currency pairs serve to set the value of each other and the exchange rates will constantly fluctuate based on the respective changing values. One currency will always hold stronger than the other.

By going along the EUR/USD foreign currency pair, the currency trader is speculating that the value of the euro will increase in relation to the U.S. dollar. Alternatively, when a forex trader shorts the EUR/USD currency pair, he or she is speculating that the value of the U.S. dollar will increase in relation to the euro.

Example of currency pairs

For example, the currency pair EUR/USD, or eurodollar, represents the number of U.S. dollars that can be bought with one euro. As the value of the EUR increases, the currency pair exchange rate will also increase.

All of the major currency pairs contain the USD on one side of the pair, which then affects the exchange rate of the currency on the other side. There are many major currency pairs within the forex market around the world. As an example, some of the most common currency pairs outside of the Eurodollar are:

  • USD/JPY. This currency pair sets the US dollar against the Japanese Yen.
  • USD/GBP. This currency pair sets the US dollar against the United Kingdom pound and is commonly referred to as the pound dollar.
  • USD/CHF. This currency pair sets the US dollar against the Switzerland currency. It is referred to as the dollar swissy.
  • USD/CAD. This currency pair sets the US dollar against the Canadian dollar. It is referred to as the dollar loonie.
  • AUD/USD. This currency pair sets the US dollar against the Australian dollar and is referred to as the aussie dollar.
  • NZD/USD. This currency pairs sets the currency of New Zealand against the US dollar and it is referred to as the kiwi dollar.

There are also currency pairs that do not trade against the US dollar and those are called cross-currency pairs.

RELATED TERMS
  1. Reciprocal Currency

    In the foreign exchange market, a currency pair that involves ...
  2. Base Currency

    The first currency quoted in a currency pair on forex. It is ...
  3. Currency History

    The historical values of a base currency in relation to the values ...
  4. Open Position Ratio

    The open position ratio is the percentage of open positions held ...
  5. Currency Futures

    A transferable futures contract that specifies the price at which ...
  6. Foreign Currency Effects

    Foreign currency effects are gains of losses on foreign investments ...
Related Articles
  1. Trading

    Range Trade Forex With Non-U.S. Dollar Pairs

    If you are following a range-trading strategy, you're better off with pairs that do not include the U.S. dollar. Find out why.
  2. Trading

    Popular Forex Currencies

    Learn about the most traded currencies and the strategies used to trade them.
  3. Trading

    Forex market: Who trades currency and why

    The forex market has a lot of unique attributes that may come as a surprise for new traders. Learn more about who trades foreign currencies and why.
  4. Investing

    Protect your foreign investments from currency risk

    Hedging against currency risk can add a level of safety to your offshore investments.
  5. Trading

    6 top-traded currencies and why they're so popular

    Every currency has specific features that affect its underlying value and price movements in the forex market.
  6. Trading

    Using Currency Correlations To Your Advantage

    Knowing the relationships between pairs can help control risk exposure and maximize profits.
  7. Trading

    8 Basic Forex Market Concepts

    We go over some of the things you need to understand before you can trade currencies.
  8. Trading

    Top 5 Reasons To Invest In Currencies

    Here's why you should get into the forex market.
RELATED FAQS
  1. Why isn't the EUR/USD currency pair quoted as USD/EUR?

    In a currency pair, the first currency is called the base currency and the second is the quote currency, a longtime convention ... Read Answer >>
  2. How do you make money trading money?

    Trading money, particularly in the forex market, is a speculative risk, as you are betting that the value of a currency will ... Read Answer >>
  3. What is the value of one pip, and why are pips different between currency pairs?

    Pips relate to the smallest price moves of foreign exchange rates. This differs from currency pairs such as EUR/USD, which ... Read Answer >>
  4. What is foreign exchange?

    Foreign exchange is the conversion of a country's currency into another. In a free economy, a country's currency is valued ... Read Answer >>
Hot Definitions
  1. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  2. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  3. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  4. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  5. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  6. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
Trading Center