How Pairs Are Structured
Every forex trade involves two currencies. The first is the base currency; the second is the quote currency. The price tells you how much of the quote currency you need to buy one unit of the base.
In GBP/USD at 1.2700, one British pound costs 1.27 US dollars. If you buy GBP/USD, you're betting the pound will strengthen against the dollar. If you sell, you're betting it will weaken.
Major Pairs
The seven major pairs all include the US dollar. They account for roughly 75% of global forex volume and have the tightest spreads and deepest liquidity:
- EUR/USD — most traded pair globally
- GBP/USD — second most popular, often called 'Cable'
- USD/JPY — the yen is a key safe-haven currency
- USD/CHF — the Swiss franc, another safe-haven
- AUD/USD, USD/CAD, NZD/USD — commodity-linked currencies
Minors and Exotics
Minor pairs (crosses) exclude the US dollar: EUR/GBP, EUR/JPY, GBP/JPY, AUD/NZD. They offer good liquidity with slightly wider spreads than majors.
Exotic pairs combine a major currency with an emerging market currency: USD/TRY, EUR/ZAR, USD/MXN. Spreads are significantly wider, overnight costs are higher, and price movements can be sharp and unpredictable. Exotics are generally suited to experienced traders.
Choosing the Right Pairs
For beginners, stick to major pairs. They're the most liquid, have the tightest spreads, and respond predictably to fundamental events. As you gain experience, minors and selectively chosen exotics can offer additional opportunities. But wider spreads mean higher costs, and lower liquidity means more slippage — so adjust your position size and risk management accordingly.
Key Takeaways
- Every forex trade involves two currencies — base and quote
- Major pairs include the US dollar and have the tightest spreads
- Minors exclude the dollar but still offer good liquidity
- Exotics have wider spreads, higher costs, and more unpredictable moves
- Beginners should start with major pairs and expand gradually
