Glossary
Currency Pair
Two currencies quoted against each other, such as EUR/USD, showing how much of the second buys one unit of the first.
A currency pair is the way foreign-exchange prices are written: two currency codes separated by a slash, such as EUR/USD or USD/JPY. The first is the base currency and the second is the quote currency, and the price tells you how many units of the quote currency it takes to buy one unit of the base. Every Foreign exchange (forex) trade is a simultaneous purchase of one currency and sale of the other.
How to read a quote
The order follows long-standing market convention, not logic. The euro and the British pound are normally quoted as the base against the dollar (EUR/USD, GBP/USD), while the dollar is the base against the yen and the Swiss franc (USD/JPY, USD/CHF). For most pairs a pip is the fourth decimal place; for yen pairs it is the second.
Families of pairs
- Majors pair the US dollar with another heavily traded currency: EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD and NZD/USD. They have the tightest spreads.
- Crosses leave out the dollar, such as EUR/GBP or EUR/JPY.
- Exotics pair a major with a currency from a smaller or emerging economy, such as USD/TRY or USD/ZAR. Spreads are wider and moves can be abrupt.
Why it matters beyond forex
Pairs matter to stock investors too. A rising USD/JPY (a weaker yen) helps Japanese exporters' reported profits, and US companies that earn abroad see revenue shrink in dollar terms when the dollar strengthens. The Exchange rate is simply the current price of a pair.