Currency pair

Foreign exchange

Exchange rates

* Currency band
* Exchange rate
* Exchange-rate regime
* Exchange-rate flexibility
* Dollarization
* Fixed exchange rate
* Floating exchange rate
* Linked exchange rate
* Managed float regime
* Dual exchange rate

Markets

* Foreign exchange market
* Futures exchange
* Retail foreign exchange trading

Assets

* Currency
* Currency future
* Non-deliverable forward
* Foreign exchange swap
* Currency swap
* Foreign exchange option

Historical agreements

* Smithsonian Agreement
* Plaza Accord
* Louvre Accord

See also

* Bureau de change
* Hard currency
* Currency pair
* Foreign exchange fraud
* Currency intervention

* v
* t
* e

A currency pair is the quotation of the relative value of a currency unit against the unit of another currency in the foreign exchange market. The currency that is used as the reference is called the counter currency, quote currency, or currency[1] and the currency that is quoted in relation is called the base currency or transaction currency.

Currency pairs are generally written by concatenating the ISO currency codes (ISO 4217) of the base currency and the counter currency, and then separating the two codes with a slash. Alternatively the slash may be omitted, or replaced by either a dot or a dash. A widely traded currency pair is the relation of the euro against the United States dollar , designated as EUR/United States dollar . The quotation EUR/USD 1.2500 means that one euro is exchanged for 1.2500 US dollars. Here, EUR is the base currency and USD is the quote currency (counter currency). This means that 1 Euro can be exchangeable to 1.25 US Dollars.

The most traded currency pairs in the world are called the Majors. They involve the currencies euro, United States dollar , Japanese yen, pound sterling, Australian dollar, Canadian dollar, and the Swiss franc.

## Contents

* 1 Syntax and quotation
* 2 Base currency
* 3 The Majors
* 4 Nicknames
* 5 Exotic pairs
* 6 Cross pairs
* 7 Trading
* 8 See also
* 9 Notes
* 10 References

## Syntax and quotation

Currency quotations use the abbreviations for currencies that are prescribed by the International Organization for Standardization (ISO) in standard ISO 4217. The major currencies and their designation in the foreign exchange market are the US dollar (USD), Euro (EUR), Japanese yen (JPY), British pound (GBP), Australian dollar (AUD), Canadian dollar (CAD), and the Swiss franc (CHF).

As mentioned previously, the quotation EUR/USD 1.2500 (or EURUSD 1.2500) means that one euro is exchanged for 1.2500 US dollars. If the quote changes from EUR/USD 1.2500 (or EURUSD 1.2500) to 1.2510, the euro has increased in relative value by 10 pips (Percentage in point), because either the dollar buying strength has weakened or the euro has strengthened, or both. On the other hand, if the EUR/USD (or EURUSD) quote changes from 1.2500 to 1.2490 the euro has become relatively weaker than the dollar.

## Base currency

Most traded currencies by value
Currency distribution of global foreign exchange market turnover[2] Rank | Currency | ISO 4217 code
(symbol) | % of daily trades
(bought or sold)
(April 2019)

|
|
|

|  United States dollar |

USD (US$)

| 88.3%

|  Euro |

EUR (€)

| 32.3%

|  Japanese yen |

JPY (¥)

| 16.8%

|  Pound sterling |

GBP (£)

| 12.8%

|  Australian dollar |

AUD (A$)

| 6.8%

|  Canadian dollar |

CAD (C$)

| 5.0%

|  Swiss franc |

CHF (CHF)

| 5.0%

|  Renminbi |

CNY (元)

| 4.3%

|  Hong Kong dollar |

HKD (HK$)

| 3.5%

|  New Zealand dollar |

NZD (NZ$)

| 2.1%

|  Swedish krona |

SEK (kr)

| 2.0%

|  South Korean won |

KRW (₩)

| 2.0%

|  Singapore dollar |

SGD (S$)

| 1.8%

|  Norwegian krone |

NOK (kr)

| 1.8%

|  Mexican peso |

MXN ($)

| 1.7%

|  Indian rupee |

INR (₹)

| 1.7%

|  Russian ruble |

RUB (₽)

| 1.1%

|  South African rand |

ZAR (R)

| 1.1%

|  Turkish lira |

TRY (₺)

| 1.1%

|  Brazilian real |

BRL (R$)

| 1.1%

|  New Taiwan dollar |

TWD (NT$)

| 0.9%

|  Danish krone |

DKK (kr)

| 0.6%

|  Polish złoty |

PLN (zł)

| 0.6%

|  Thai baht |

THB (฿)

| 0.5%

|  Indonesian rupiah |

IDR (Rp)

| 0.4%

|  Hungarian forint |

HUF (Ft)

| 0.4%

|  Czech koruna |

CZK (Kč)

| 0.4%

|  Israeli new shekel |

ILS (₪)

| 0.3%

|  Chilean peso |

CLP (CLP$)

| 0.3%

|  Philippine peso |

PHP (₱)

| 0.3%

|  UAE dirham |

AED (د.إ)

| 0.2%

|  Colombian peso |

COP (COL$)

| 0.2%

|  Saudi riyal |

SAR (﷼)

| 0.2%

|  Malaysian ringgit |

MYR (RM)

| 0.1%

|  Romanian leu |

RON (L)

| 0.1%
Other | 2.2%
Total[note 1] | 200.0%

The rules for formulating standard currency pair notations result from accepted priorities attributed to each currency.

From its inception in 1999 and as stipulated by the European Central Bank, the euro has first precedence as a base currency. Therefore, all currency pairs involving it should use it as their base, listed first. For example, the US dollar and euro exchange rate is identified as EUR/USD.[3]

Although there is no standards-setting body or ruling organization, the established priority ranking of the major currencies is:

1. euro
2. pound sterling
3. Australian dollar
4. United States dollar
5. Canadian dollar
6. Swiss franc
7. Japanese yen

Historically, this was established by a ranking according to the relative values of the currencies with respect to each other,[4] but the introduction of the euro and other market factors have broken the original price rankings. For example, while historically Japanese yen would rank above Mexican peso, the quoting convention for these is now MXNJPY, i.e. Mexican peso has higher priority than Japanese yen.

Other currencies (the Minors) are generally quoted against USD. Quotes against major currencies other than USD are referred to as currency crosses, or simply crosses. The most common crosses are EUR, JPY, and GBP crosses, but may be a major currency crossed with any other currency. The rates are almost universally derived, however, by taking the first currency's rate against the USD and multiplying/dividing by the second currency's rate against the USD.

Sometimes the term base currency may also refer to the functional currency of a bank or company, usually their domestic currency. For example, a British bank may use GBP as a base currency for accounting, because all profits and losses are converted to sterling. If a EUR/USD position is closed out with a profit in USD by a British bank, then the rate-to-base will be expressed as a GBP/USD rate. This ambiguity leads many market participants to use the expressions currency 1 (CCY1) and currency 2 (CCY2), where one unit of CCY1 equals the quoted number of units of CCY2.

## The Majors

The most traded pairs of currencies in the world are called the Majors. They constitute the largest share of the foreign exchange market, about 85%,[5] and therefore they exhibit high market liquidity.

The Majors are: EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF and USD/CAD.[5]

## Nicknames

In everyday foreign exchange market trading and news reporting, the currency pairs are often referred to by nicknames rather than their symbolic nomenclature. These are often reminiscent of national or geographic connotations. The GBP/USD pairing is known by traders as cable (also the cable), which has its origins from the time when a communications cable under the Atlantic Ocean synchronized the GBP/USD quote between the London and New York markets. GBP is also referred to by traders as quid. The following nicknames are common: "Swissy" or "Euro-Swissy" for EUR/CHF, Fiber for EUR/USD, Chunnel for EUR/GBP, Loonie and The Funds for USD/CAD, Aussie for AUD/USD, Gopher for USD/JPY, Guppy for GBP/JPY, Yuppy for EUR/JPY pairing. New innovations include Barney for USD/RUB and Betty for EUR/RUB after the fictional characters the Rubbles in The Flintstones.[6] Nicknames vary between the trading centers in New York, London, and Tokyo.

Care should be taken with the use of Betty for EUR/RUB as, in London markets, Betty is used as Cockney Rhyming slang for cable (as in: Betty Grable = cable = GBP/USD).[7]

## Exotic pairs

Alongside forex major and minor pairs are the combination of pairs known as "exotic pairs". These pairs involve a major currency - like USD, EUR, GBP, or the JPY - alongside a thinly-traded currency that holds minimal trading volume within the foreign exchange market. Such pairs include EUR/TKY, USD/SGD, USD/HKD, and GBP/SEK, to name a few. Since trading volume is less present within these pairs, there is a lack of market depth, leading to wider spreads. As a result, these pairs become high risk to trade; hence, the term "exotic pairs". The high level of risk, unique trading opportunity, and increased volatility behind exotic pairs pushes most retail traders the opposite way; however, when traded by experienced traders within season, the trading of exotic pairs offers the potential for high returns. The high volatility of these pairs is due to the pairing of a strong major currency with a more developing and unstable currency.[8]

## Cross pairs

The currency pairs that do not involve USD[9] are called cross currency pairs, such as GBP/JPY. Pairs that involve the euro are often called euro crosses, such as EUR/GBP.

## Trading

JPY/AUD since 1978

Currencies are traded in fixed contract sizes, specifically called lot sizes, or multiples thereof. The standard lot size is 100,000 units. Many retail trading firms also offer 10,000-unit (mini lot) trading accounts and a few even 1,000-unit (micro lot).

The officially quoted rate is a spot price. In a trading market however, currencies are offered for sale at an offering price (the ask price), and traders looking to buy a position seek to do so at their bid price, which is always lower than the asking price. This price differential is known as the spread. For example, if the quotation of EUR/USD is 1.3607/1.3609, then the spread is US$0.0002, or 2 pips.[10] In general, markets with high liquidity exhibit smaller spreads than less frequently traded markets.

The spread offered to a retail customer with an account at a brokerage firm, rather than a large international forex market maker, is larger and varies between brokerages. Brokerages typically increase the spread they receive from their market providers as compensation for their service to the end customer, rather than charge a transaction fee. A bureau de change usually has spreads that are even larger.[11]

* Example: consider EUR/USD currency pair traded at a quotation of 1.33

In the above case, someone buying 1 euro will have to pay US$1.33; conversely one selling 1 euro will receive US$1.33 (assuming no FX spread). Forex traders buy EUR/USD pair if they believe that the euro would increase in value relative to the US dollar, buying EUR/USD pair; this way is called going long on the pair; conversely, would sell EUR/USD pair, called going short on the pair, if they believe the value of the euro will go down relative to the US dollar. A pair is depicted only one way and never reversed for the purpose of a trade, but a buy or sell function is used at initiation of a trade. Buy a pair if bullish on the first position as compared to the second of the pair; conversely, sell if bearish on the first as compared to the second.

## See also

* Currency strength
* Foreign exchange option
* Currency Commission
* Statistical arbitrage

## Notes

1. ↑ The total sum is 200% because each currency trade always involves a currency pair; one currency is sold (e.g. US$) and another bought (€). Therefore each trade is counted twice, once under the sold currency ($) and once under the bought currency (€). The percentages above are the percent of trades involving that currency regardless of whether it is bought or sold, e.g. the U.S. Dollar is bought or sold in 88% of all trades, whereas the Euro is bought or sold 32% of the time.

## References

1. ↑ Western Union How to Read Currency Exchange Rates
2. ↑ "Triennial Central Bank Survey Foreign exchange turnover in April 2019" (PDF). Bank for International Settlements. 16 September 2019. p. 10. https://www.bis.org/statistics/rpfx19_fx.pdf.
3. ↑ "Interpreting a currency pair". PrimePair. https://fxaccumulator.com/interpreting-a-currency-pair/.
4. ↑ "Modern currency exchange rates". 19 April 2018. https://usd.mconvert.net/eur/1.
5. ↑ 5.0 5.1 Heath, Alex; Upper, Christian; Gallardo, Paola; Mesny, Philippe; Mallo, Carlos (December 2007), Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in 2007, Bank for International Settlements, p. 10, ISBN 978-92-9197-750-5, http://www.bis.org/publ/rpfxf07t.htm, retrieved 6 October 2009
6. ↑ [1][yes|permanent dead link|dead link}}] FXDD "Dynamics of Currency Pairs", fxdd.co, published 30 June 2012, retrieved 7 November 2012
7. ↑ Financial Times (12 November 2014). "Traders forex chatroom banter". Financial Times. https://www.ft.com/content/47c32ec4-6a34-11e4-8fca-00144feabdc0.
8. ↑ "Exotic Forex Pairs: What You Should Know" Forexezy.com Retrieved 3 September 2021https://forexezy.com/exotic-forex-pairs#:~:text=Exotic pairs account for the smallest amount of,which adds more executional risks to trading “exotics” .
9. ↑ "What is a Currency Cross Pair?". 30 November 2010. https://www.babypips.com/learn/forex/what-is-a-currency-cross-pair.
10. ↑ Abdulla, Mouhamed (March 2014). ﻿Understanding Pip Movement in FOREX Trading﻿ (Report). http://drmoe.org/misc/ForexPip.pdf. Retrieved 24 April 2017.
11. ↑ Andres Salazar (March 2016). "What is a Spread and Why Does it Matter". https://www.financemagnates.com/executives/insights/what-is-a-spread-and-why-does-it-matter/.

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