Currency pairs
Open a forex platform and you never see a price for a single currency on its own. You see EUR/USD, GBP/JPY, AUD/CAD. That is because money only has value in relation to other money, so every forex price compares one currency against another. Learning to read that comparison is the first step to understanding any quote you meet.
Base and quote currency
Every pair has two parts. The currency written first is the base currency, and the currency written second is the quote currency. The price tells you how much of the quote currency it takes to buy one unit of the base. For example, if EUR/USD is trading at 1.0850, one euro costs 1.0850 US dollars.
Majors, minors and exotics
- Majors are the most heavily traded pairs, and each one includes the US dollar, such as EUR/USD, USD/JPY and GBP/USD. They tend to have the tightest spreads.
- Minors, also called crosses, pair two major currencies without the US dollar, such as EUR/GBP or AUD/JPY.
- Exotics pair a major currency with one from a smaller or emerging economy, such as USD/TRY or EUR/ZAR. They usually carry wider spreads and can move sharply.
What a rising or falling price means
Because the price describes the base in terms of the quote, a rising quote means the base currency is strengthening against the quote currency, while the quote currency is weakening against the base. Suppose EUR/USD moves from 1.0850 to 1.0950: the euro has gained value relative to the dollar. A falling quote means the opposite, with the base weakening and the quote strengthening.
Knowledge check
Check your understanding. You can retry as many times as you like, and only concepts are tested.
Question 1 of 3
In the pair GBP/USD, which currency is the base, and what does the price tell you?
Risk warning
Trading forex and CFDs on margin carries a high level of risk and can result in the loss of all your capital. These lessons are educational and general in nature; they are not investment advice or a personal recommendation. Consider your objectives and experience, and seek independent advice if needed.
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