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Currency pairs are the two currencies being traded in the foreign exchange market, where one currency is exchanged for another. They are structured with the base currency listed first and the quote currency second, showing how much of the quote currency is needed to buy one unit of the base currency.
Currency pairs are the foundation of forex trading, representing the value of one currency relative to another. They are structured in two parts: the base currency and the quote currency.
- Base Currency: This is the first currency in the pair, and it represents the currency you are buying or selling. For example, in the pair EUR/USD, the euro (EUR) is the base currency.
- Quote Currency: This is the second currency in the pair, which indicates how much of the quote currency is needed to buy one unit of the base currency. In the EUR/USD example, if the exchange rate is 1.15, it means 1 euro is equal to 1.15 US dollars.
Currency pairs are further categorized into three types:
- Major Pairs: These involve the most traded currencies, usually including the US dollar. Examples are EUR/USD, USD/JPY, and GBP/USD.
- Minor Pairs: These pairs do not involve the US dollar and include currencies like the euro, pound, and yen. Examples are EUR/GBP and AUD/NZD.
- Exotic Pairs: These consist of a major currency paired with a currency from a developing or smaller economy. Examples are USD/TRY (Turkish Lira) and EUR/THB (Thai Baht).
In summary, currency pairs show the relationship between two currencies, with the base currency representing what you are buying or selling, and the quote currency indicating its value.