Currency pairs in forex trading
Written by
| Reviewed by Abdul Latheef K
Last updated on
December 10, 2025
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Currency pairs are one of the most important and exciting factors in the forex world. Are you aware of the various currency pairs that determine the movements in the forex trading, influencing even the minute trading decisions across the world? Have you ever wondered how traders profit from tiny movements between the euro, dollar, or yen?
Every currency pair in forex trading matters. Each trade in the forex world is a tale of one base currency rising or falling against another. There might be a number of questions and queries regarding the currency pairs in your mind. This is the platform to clear them all.
In this article, we will uncover what currency pairs are, why they matter, what the various currency pairs are, and much more. We will also discuss the risks and best practices in trading currency pairs.
So, let’s dive deeper into the details of currency pairs, one of the major components that rule the world of forex trading.
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What are currency pairs?
A currency pair in forex trading, as the name suggests, is two currencies involved in transactions in forex trading. They are one of the most important factors in trading, as every transaction in forex is done with these currency pairs.
It shows how much one currency, or the base currency, is worth compared to the other one, or the quote currency. For example, EUR/USD = 1.25 means 1 unit of base currency (EUR) equals 1.25 units of the quote currency (USD). This is how the value of currency pairs is calculated. So, if the 1.25 increases to 1.30, it is considered that the Euro has strengthened against the dollar.
As we have already mentioned, currencies in forex trading are always traded in pairs. So, the value of one currency is expressed in exchange rates or in relation to another.
Some of the key components of currency pairs are as follows:
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Why do currency pairs matter in forex trading?
Currency pairs in forex trading are among the most important factors, reflecting various elements that decide the market and trade results. So, in this section, let us see why currency pairs matter and what elements they have an influence on.
1. Liquidity
Major currency pairs like EUR/USD or USD/JPY are the most traded in the world. Their high liquidity ensures smoother trade execution, tighter spreads, and lower trading costs, making it ideal for both new and professional traders.
2. Volatility
Minor and exotic currency pairs often show higher volatility, meaning their prices move more dramatically. Traders find it useful, as they can utilise this volatility to identify profit opportunities, along with adjusting their risk tolerance and position size.
3. Market analysis
Currency pairs are a major tool used for technical and fundamental analysis. By learning the exchange rate movements, bid-ask spreads, and economic indicators. Traders can identify the global financial trends and make informed trading decisions.
4. Strategy development
Traders design their forex trading strategies based on how different pairs behave. While stable pairs are for steady growth, volatile ones are for aggressive returns. This alignment between currency pair selection, investment strategies, and financial objectives leads to more disciplined and confident trading.
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Types of currency pairs in forex trading
Now that you have a broad understanding of currency pairs and why these pairs are important in trading, let us move to a more detailed discussion. As we have already discussed, understanding currency pairs is crucial in learning how to start forex trading. There are various classifications for currency pairs, which will be discussed in this section.
The details are as follows:
1. Major currency pairs
Major currency pairs are the most popularly traded and liquid currency pairs in the foreign exchange market. Most of these pairs include the U. S. Dollar paired with another popular global currency.
Being a representation of a strong economy, these pairs dominate the global forex transactions. Some of the key advantages of these pairs include high liquidity, smoother trade execution, tight spreads, and the ability to minimise trading costs.
Moreover, the price movements of major currency pairs are more predictable due to the influence of popular economic indicators, interest rate decisions, and central bank policies.
Some notable examples of the major currency pairs are:
2. Minor or cross-currency pairs
Minor currency pairs are pairs that consist of two major currencies, excluding the US Dollar. These pairs are also known as cross-currency pairs. While using these pairs, the traders can evaluate the strength of one major economy against another without involving the dollar.
While these pairs have moderate liquidity, their spreads are slightly wider compared to the major currency pairs. Additionally, the minor currency pairs are typically influenced by regional market events and economic releases from the countries involved.
Traders often use the minor currency pairs to diversify their forex trading strategies and experiment with unique opportunities in the global forex market.
Examples of these currency pairs include:
3. Exotic currency pairs
Exotic currency pairs are those that include a major currency, such as the dollar, the Euro, or the yen and a currency from an emerging or developing economy, like Turkey, South Africa, or India.
The exotic currency pairs are considered a reflection of the economic relationship between the advanced and developing countries. However, these pairs tend to have low liquidity, wider bid-ask spreads, and high volatility. Moreover, they are largely influenced by geopolitical events, policy changes, and local market fluctuations.
Even though these pairs might have a larger profit potential for experienced traders, they demand stronger risk management, market analysis, and risk tolerance.
Some of the exotic currency pairs are:
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Top 10 most-traded currency pairs
The global forex market is considered one of the biggest and most traded platforms. So, being the most liquid financial market in the world, the forex market includes various major currency pairs.
As mentioned, these pairs offer high liquidity, tight spreads, and minimal slippage. So, understanding these pairs and identifying the best currency pairs for trading can help traders, both beginners and experts, make insightful decisions and develop proper trading strategies.
Below are the top 10 most-traded currency pairs.
1. EUR/USD (Euro/US Dollar)
The EUR/USD is the most traded currency pair globally and represents the economic powerhouses of the European Union and the United States. It is characterised by deep liquidity and tight spreads, suitable for both beginners and professionals alike.
Price movements of this pair are influenced by interest rate differentials between the ECB and the Federal Reserve, as well as U.S. GDP, inflation, and employment data. Since both currencies are stable, the pair often reacts strongly to changes in monetary policy and geopolitical events.
2. USD/JPY (US Dollar/Japanese Yen)
The pair reflects the relation of the world’s reserve currency versus one of the most popular safe-haven currencies. The USD/JPY is popular for carry trade strategies, wherein traders borrow low-yielding yen to invest in higher-yielding assets.
The movements of this currency pair are influenced by the U.S. Treasury yields, BOJ monetary policy, and overall market risk sentiment. It is very active during the Tokyo and New York trading sessions.
3. GBP/USD (British Pound/US Dollar)
This pair represents trade between the United Kingdom and the United States. It is popularly known as “Cable”, representing the deep-sea cables used to deliver the bid and ask quotes between London and New York.
The pair is highly volatile and very sensitive to the interest rate changes by the BoE, economic growth data, and political events like Brexit.
4. AUD/USD (Australian Dollar/US Dollar)
Nicknamed the “Aussie”, this currency pair has strong relations with commodity exports, including iron ore, gold, and coal. The ASIC regulates the forex brokers and trading practices in Australia, indirectly influencing the market of the AUD/USD currency pair.
Additionally, its movement is contingent upon demand for China’s trades, policies set by the RBA, or fluctuations in commodity prices. It is considered a high-yield currency pair due to its traditionally higher interest rates.
5. USD/CAD (US Dollar/Canadian Dollar)
This currency pair is commonly known as “Loonie”, in regard to the loon bird found on the Canadian dollar coin, symbolising the pairing of the US and Canadian dollars. With Canada being one of the major exporters of crude oil, this currency pair has a close relation with crude oil prices.
Some of the major factors that influence the volatility of this currency pair in forex trading include the Bank of Canada’s monetary policy, US-Canada trade relations, and global demand for crude oil. It offers clear trend patterns and moderate liquidity, making it a common choice for traders focusing on commodity-linked currencies.
6. USD/CHF (US Dollar/Swiss Franc)
The Swiss franc is a well-known safe-haven currency, and hence, the USD/CHF pair usually reflects global risk sentiment. During market turmoil or geopolitical conflict, traders mostly opt for this pair for safety.
Because of Switzerland’s close economic relations with Europe, this pair often inversely correlates with the EUR/USD. However, the price of this pair might decrease during periods of high risk or market turmoil, as traders buy the safe-haven CHF, causing it to strengthen against the USD. Although less volatile than some pairs, USD/CHF remains among the most traded due to its safe-haven appeal.
7. USD/CNY (US Dollar/Chinese Yuan)
The USD/CNY pair reflects the trade and financial relations between the United States and China. Changes in this pair are based on the trade balance data, Chinese manufacturing output, and monetary policy adjustments. It’s a key pair for traders monitoring global trade flows and emerging market trends.
8. EUR/GBP (Euro/British Pound)
A popular cross-currency pair, EUR/GBP, shows economic interaction between two of Europe’s largest economies. Its movements are shaped by the policy divergence of the ECB and BoE, the EU-UK trade negotiations, and macroeconomic data like inflation and GDP.
The EUR/GBP is a popular pair for traders who want to trade European currencies without taking a direct position in the U.S. dollar.
9. USD/HKD (US Dollar/Hong Kong Dollar)
It is believed that the trading volume of this pair increased from 2016 to 2019 due to the Hong Kong protests that dominated in 2019. The Hong Kong Dollar operates under a linked exchange rate system, pegged within a narrow band (7.75–7.85 HKD per USD), managed by the Hong Kong Monetary Authority. This peg means low volatility and predictable pip movements due to the exchange rate stability.
10. USD/KRW (US Dollar/South Korean Won)
One of the popular currency pairs in forex trading, USD/KRW, is traded rather actively during the Asian trading session, reflecting expectations about the overall economic performance of South Korea, especially its hi-tech and semiconductor industries.
The BoK closely watches the value of the won and has policies supportive of exports. Global risk appetite, US interest rates, and trade balance data are vital elements influencing this pair’s direction.
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Risks and best practices in trading currency pairs
Trading currency pairs can be highly rewarding. However, it also comes with certain risks. So, identifying these risks and opting for practices and methods that help better mitigate them should be learnt before entering the trading world.
Below are some of the major risks and best practices in trading currency pairs.
Key risks
Best practices for safe trading
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Conclusion
As we have already discussed, mastering currency pairs in forex trading is essential for building a strong trading foundation. Being a crucial factor in the global forex market, each pair, whether it be major, minor, or exotic, reacts differently to global economic factors, offering unique opportunities and risks.
Most of you might be aware that the forex market is a high-risk market. So, trading on this platform needs proper education and guidance. With high volatility and other risk elements, beginners are advised not to begin their trading journey with unpredictable currency pairs. So, major pairs like EUR/USD or USD/JPY with more stability and liquidity are more suitable for beginners.
However, to understand how the forex market works and how these pairs are traded, first you have to explore what forex trading is and begin with the basics. A detailed understanding of all these factors, paired with proper market research, risk management, and expert guidance, can help you achieve significant returns from forex trading.
Author Info
Uma Nair is a professional content writer with over 3 years of experience and a strong foundation in crafting engaging and informative content across diverse domains. Over the years, she has dealt with various niches, and her growing interest in finance has led her to explore the world of financial writing. As an English Language and Literature postgraduate, her educational background supports her ability to convey complex topics in easy and accessible content. In her free time, she stays updated on industry trends to continually enhance the value of her content.
Reviewed by
Abdul Latheef K is a Researcher at Jawaharlal Nehru University, New Delhi. He is also an Author, Educator, and Expert in personal finance and Investment. His areas of interest comprise the Stock Market, foreign capital flows, and Open Economy Macroeconomics.
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The information provided on this blog is for general informational and educational purposes only and is not intended as financial, investment, legal, or tax advice. While we strive to ensure accuracy, completeness, and timeliness, the financial world is dynamic, and content may become outdated or subject to change. Always conduct your own research or consult with a qualified financial advisor before making any investment or financial decisions. The authors and publishers of this blog are not liable for any losses or damages arising from the use or reliance on the information presented.
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