How it works
You never trade a single currency in forex. You always trade one against another. Buying EUR/USD means you are long euros and short dollars at the same time. Sell EUR/USD and you flip both sides. The pair’s price is a ratio: how many units of the quote currency one unit of the base currency is worth right now.
Example
EUR/USD = 1.0856. EUR is the base, USD is the quote. To open one mini lot, you take on 10,000 euros of exposure and short the equivalent dollars. If EUR/USD rises to 1.0900, the euros you hold are now worth more dollars, and you profit. If it falls to 1.0800, you lose. The dollar amount of each pip movement is set by the quote currency, which is why USD pairs are simple and JPY-quoted pairs require a different pip-value calculation.
Three pair categories
- Majors: any pair involving USD and one of the seven largest currencies (EUR, JPY, GBP, AUD, CAD, CHF, NZD). Highest liquidity, tightest spreads.
- Minors (crosses): pairs between major currencies that do not include USD, like EUR/GBP or AUD/JPY. Slightly wider spreads, still liquid.
- Exotics: a major paired with an emerging-market currency, like USD/TRY or EUR/PLN. Wide spreads, gappy, news-driven.
Why it matters
Picking the right pair decides cost, volatility, and trading hours. Majors trade 24 hours with 0.6 to 1.5 pip spreads. Exotics can have 30 pip spreads and overnight gaps that blow through stops. Strategy and pair selection are not separable: the same setup that wins on EUR/USD can lose on USD/TRY purely because of cost structure.
