Currency pair
A currency pair is a term that defines a quote of the relative value of one currency in relation to another. In a currency pair, the first currency is called the “base currency,” and the second is the “quote currency.” For example, in the EUR/USD currency pair, the euro acts as the base currency, and the US dollar is the quote currency. A currency pair shows how much of the quote currency is needed to buy one unit of the base currency. ISO codes are unique three-letter abbreviations representing different currencies and are internationally recognized (for example, “USD” for the US dollar).
General Information About Currency Pairs
Pairs of national currencies are traded on the international Forex market. Forex operates five days a week, with trading occurring around the clock during those days. Cryptocurrency exchanges, in contrast, operate 24 hours a day, 365 days a year.
The currency pair is considered a separate unit, treated as a single whole for purchase and sale transactions. Each currency pair has bid (purchase) and ask/offer (sale) prices. The ask price is the amount in the quote currency required to obtain one unit of the base currency. The bid price is the amount of the base currency required to purchase one unit of the quote currency.
Factors Influencing Currency Pairs
- Political events and economic stability in a country. For example, the ongoing trade war between the United States and China has had a major impact on many markets around the world.
- Economic events, such as the level of a country’s GDP, can affect the stability of the national currency. Unexpected events can disrupt a country’s economy, even in very large countries. For instance, the Covid-19 pandemic caused the world’s largest economies to lose a significant percentage of their GDP.
- Information and social factors can dramatically affect the value of a certain asset, and it does not matter at all whether this hype was created intentionally or indirectly.
Traders often need to react immediately to any changes in the market if they want to make a profit.
Currency Pair Examples
The main currency pairs are the most frequently traded on the market. According to traders, the largest share of the Forex market is accounted for by:
- EUR/USD (euro/US dollar).
- USD/JPY (US dollar/Japanese yen).
- GBP/USD (British pound/US dollar).
- USD/CHF (US dollar/Swiss franc).
If we talk about cryptocurrencies, common trading pairs include BTC/USDT (Bitcoin/US Dollar Tether) and ETH/USDT (Ether/USDT).
Exotic or Non-Core Currency Pairs
Exotic currency pairs consist of a major currency and a currency from an emerging market. The Turkish lira against the US dollar is currently considered one of the most exotic currency pairs.
Cryptocurrency Pairs
The most famous currency pair in the cryptocurrency market today is ETH/BTC (Ethereum vs Bitcoin). To date, about 18,000 cryptocurrencies are known, and this number continues to grow. As mentioned above, cryptocurrencies are traded 24/7, but they are more volatile compared to fiat currencies.
How Does a Currency Pair Work?
When a trader buys a currency pair, they agree to receive the base currency in exchange for the quote currency.
Which Currency Pair Is the Best on Forex?
If you know how to trade, understand the principles of trading, and can track market trends in time, then you understand that there is no such thing as the “best currency pair”. If you are a newbie, then you should stick to the main currency pairs, since there is more analytical information available about these assets today.