A forex pair is a tradable instrument that denotes the value of one currency relative to another. Other names it goes by include ‘FX pair’, ‘currency pair’, or ‘foreign currency pair’.
The forex pair is made up of the ‘base’ currency and the ‘quote’ currency.
The USD/JPY (US dollar vs Japanese Yen) is an example of a forex pair, where the USD represents the base currency, and the JPY represents the quote currency. As such, the USD/JPY denotes how many Japanese yen can be acquired for 1 USD (e.g., 100.00 yen for 1 dollar).
As a tradable instrument, if you buy the USD/JPY, you are expecting the value of the USD to appreciate relative to the JPY (e.g., expect to be able to exchange USD for more JPY than the current rate in the future). Conversely, if you sell the USD/JPY, you are expecting the value of the USD to depreciate relative to the JPY (e.g., expect to be able to exchange JPY for more USD than the current rate in the future).
The value of forex pairs fluctuates according to several factors, including the macro-economic conditions of the countries that issue each currency.
The most traded pairs in the world are referred to as the ‘major’ pairs. The major forex pairs include:
- EUR/USD (Euro/ US dollar)
- GBP/USD (Great British Pound/ US dollar)
- USD/CHF (US dollar/ Swiss franc)
- USD/JPY (US dollar/ Japanese yen)
- AUD/USD (Australia dollar/ US dollar)
- NZD/USD (New Zealand dollar / US dollar)
- USD/CAD (US dollar/ Canadian dollar)
Besides these major pairs, investors can trade numerous ‘minor’ and ’exotic’ pairs. Minor pairs are currency pairs without the US dollar as a constituent. Popular minor pairs include:
- EUR/GBP (Euro/ Great British pound)
- GBP/JPY (Great British Pound/ Japanese yen)
- EUR/CHF (Euro/ Swiss franc)
Exotic pairs include an emerging market’s currency as one constituent of the forex pair. Popular exotic pairs include:
- USD/THB (US dollar/ Thailand baht)
- EUR/TRY (Euro/ Turkish lira)
- GBP/ZAR (Sterling/ South African rand)
- AUD/MXN (Australian dollar/ Mexican peso)
- USD/VND (US dollar/ Vietnamese dong)
