How Currency Pairs Work
Understand the structure of forex pairs — majors, minors and exotics — and learn how to read a currency quote correctly.
- 1Currency pairs are split into majors, minors, and exotic pairs.
- 2The base currency is the first in the pair; the quote currency is the second.
- 3The bid is the price you sell at; the ask is the price you buy at.
- 4The spread is the difference between bid and ask — this is the broker's fee.
Every forex trade involves two currencies. The price you see on your trading platform is always the exchange rate between these two currencies. Learning to read a currency pair correctly is the very first skill every forex trader must master.
Base Currency and Quote Currency
In any currency pair, the first currency listed is the base currency and the second is the quote currency. For EUR/USD:
EUR is the base currency
USD is the quote currency
The price (e.g. 1.0850) tells you how many US Dollars are needed to buy one Euro. When you buy EUR/USD, you are buying Euros and selling Dollars. When you sell, you are selling Euros and buying Dollars.
Majors, Minors and Exotics
Major pairs all include the US Dollar (USD) and account for the most trading volume. Examples: EUR/USD, GBP/USD, USD/JPY, USD/CHF.
Minor pairs (also called cross pairs) do not include the USD but pair two other major currencies. Examples: EUR/GBP, EUR/JPY, GBP/JPY.
Exotic pairs combine a major currency with the currency of a developing economy. Examples: USD/INR, USD/ZAR, EUR/TRY. These have wider spreads and lower liquidity.
Bid, Ask and the Spread
Every currency pair has two prices:
Bid — the price at which the market (or your broker) will buy from you. This is the price you get when you sell.
Ask — the price at which the market will sell to you. This is the price you pay when you buy.
The spread is the difference between bid and ask, measured in pips. On EUR/USD, a typical spread might be 1–2 pips. The spread is effectively the cost of your trade. Tighter spreads mean lower trading costs.
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