A currency pair in the forex market is a union of two currencies whose values are linked.
Currency pairs, which can be found in the foreign exchange market, are used to compare the value of one currency to another. The currency pair is divided into two parts: the ‘base’ currency (the first named currency) and the secondary currency (the ‘quote’ currency). They showed price points to how much of the quote currency is vital to purchase one unit of the base currency.
The foreign exchange market, commonly known as the currency or forex market (FX), is the world’s largest and most liquid financial market. Currencies are always exchanged in pairs. This is due to the fact that forex trading involves simultaneously purchasing one currency and selling another. The currency pair can be viewed as a single unit, an instrument that can be bought or sold.
Furthermore, currency pairs are as numerous as there are currencies on the globe. As currencies come and go, the total number of currency pairs varies. All currency pairs are classified based on the amount of money transacted on a daily basis.
Forex currency pairs are classified into three groups built on global trading activity, liquidity, and volume. There are three main types of Forex currency pairs which are as follows:
- Major currency pair
- Minor currency pair
- Exotic currency pair
Major currency pair
The forex main currency pair is the currency pair that contains the US dollar as a base or quote currency. Major currency pairs are the most commonly traded and liquid currency pairs.
The term liquidity is usually the level of activity in the financial market. In forex, it is determined by the number of active traders who purchase and sell a given currency pair, as well as the volume transacted. The more frequently something is traded, the more liquid it is.
For example, the EUR/USD currency pair is traded more frequently and in greater volume than the AUD/USD currency pair. This suggests that the EUR/USD pair is more liquid than the AUD/USD pair.
There are seven major forex currency pairs which are as included:
| Currency Pair | Currency Name |
| EURUSD | Euro / US Dollar |
| USDCHF | US Dollar / Swiss France |
| AUDUSD | Australian Dollar / US Dollar |
| GBPUSD | British Pound / US Dollar |
| NZDUSD | New Zealand Dollar / US Dollar |
| USDJPY | US Dollar / Japanese Yen |
| USDCAD | US Dollar / Canadian Dollar |
The advantages of major currency pairs are their high liquidity, large volume, low spread, and low broker commission.
Minor currency pair
The currency pair that does not include the US dollar is known as a forex minor currency pair. These pairings have a little wider spread and are less liquid than the majors, but they are still adequate markets. The crosses with the most volume are currency pairs whose individual currencies are also majors. EUR/GBP, GBP/JPY, and EUR/CHF are some examples of minor currency pairs. In forex, there are 21 minor currency pairs. The most commonly traded minor currencies are GBP, JPY, and EUR.
| Currency Pair | Currency name |
| EURGBP | Euro / British Pound |
| EURCAD | Euro / Canadian Dollar |
| EURAUD | Euro / Australian Dollar |
| EURNZD | Euro / New Zealand Dollar |
| EURCHF | Euro / Swiss France |
| EURJPY | Euro / Japanese Yen |
| GBPJPY | British Pound / Japanese Yen |
| AUDJPY | Australian Dollar / Japanese Yen |
| NZDJPY | New Zealand Dollar / Japanese Yen |
| CADJPY | Canadian Dollar / Japanese Yen |
| CHFJPY | Swiss France / Japanese Yen |
| GBPCAD | British Pound / Canadian Dollar |
| GBPAUD | British Pound / Australian Dollar |
| GBPNZD | British Pound / New Zealand Dollar |
| GBPCHF | British Pound / Swiss France |
| AUDNZD | Australian Dollar / New Zealand Dollar |
| AUDCAD | Australian Dollar / Canadian Dollar |
| AUDCHF | Australian Dollar / Swiss France |
| NZDCHF | New Zealand Dollar / Swiss France |
| CADCHF | Canadian Dollar / Swiss France |
| NZDCAD | New Zealand Dollar / Canadian Dollar |
Exotic currency pair
Exotic currency pair refers to the pairing of a major currency and the currency of a developing country (Turkey, Singapore, Mexico, and so on).
Currency pairs from emerging markets are examples of exotic currency pairs. Exotic currency pairs are less liquid, with significantly bigger spreads. The USD/SGD (US dollar/Singapore dollar) is an example of an unusual currency pair.
These are the least traded currency pairs in the FX market, and their liquidity is lower than cross pairs. Prices might fluctuate dramatically, and spreads can be wide due to the decreased volume of trades. There is also little historical data on these pairs, so those relying on technical analysis may find it difficult to obtain insight.
| Currency Pair | Currency Name |
| USDHKD | US Dollar / Hong Kong Dollar |
| USDSGD | US Dollar / Singapore Dollar |
| USDMXN | US Dollar / Mexican Peso |
| USDTRY | US Dollar / Turkish Lira |
| USDNOK | US Dollar / Norwegian Krone |
| USDZAR | US Dollar / South African Rand |
Conclusion
A price quote of the exchange rate for two different currencies traded on FX markets is referred to as a currency pair. There are three major types of currency pairs. When a currency pair order is made, the first listed currency, known as the base currency, is purchased, and the second listed currency, known as the quote currency, is sold. The currency pair EUR/USD is regarded as the most liquid one globally. The second most popular currency pair globally is USD/JPY.
