A currency pair or forex pair represents the two currencies involved in a forex trade. One currency is bought, while the other is sold. For example, in the INR/USD pair, you are trading the rupee against the US dollar. The first currency (INR) is the base currency, and the second (USD) is the quote currency.
Base Currency and Quote Currency
The base currency is the first currency listed in a pair, while the quote currency (also called the counter currency) is the second. The price of forex pairs indicates how much of the quote currency is needed to purchase one unit of the base currency.For example:
- EUR/USD = 1.17 means 1 Euro is equal to 1.17 US Dollars.
- INR/USD = 0.011 means 1 Indian Rupee is equal to 0.011 US Dollars.
Types of Currency Pairs
Traders classify currency pairs into three main categories based on trading volume and liquidity: major, minor, and exotic. Each group behaves differently in terms of liquidity, volatility, and trading cost.Major Currency Pairs
These pairs include the world’s most traded currencies and always include the US dollar.Examples:
- EUR/USD (Euro/US Dollar)
- GBP/USD (British Pound/US Dollar)
- USD/JPY (US Dollar/Japanese Yen)
Minor Currency Pairs
These pairs do not include the US dollar but involve other major currencies.Examples:
- EUR/GBP (Euro/British Pound)
- EUR/AUD (Euro/Australian Dollar)
- GBP/JPY (British Pound/Japanese Yen)
Exotic Currency Pairs
Exotic pairs involve a major currency and a currency from an emerging or smaller economy.Examples:
- USD/INR (US Dollar/Indian Rupee)
- EUR/TRY (Euro/Turkish Lira)
- USD/THB (US Dollar/Thai Baht)
- INR/ZAR (Indian Rupee/South African Rand)
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