You Buy And Sell In “Currency Pairs”

You Buy And Sell In “Currency Pairs”

When you trade in Forex what you are actually doing is buying and selling “currency pairs”. You are buying one currency and selling another at exactly the same time. Your trading is done through a broker, or dealer, and you could, for instance trade in pairs such as the USD and the GBP, or the NZD and AUD.

If you imagine that each currency is on the end of a tug of war rope, you will get the idea. The exchange rates go up or down based on which currency is regarded as stronger at any particular moment.

The following table of currency pairs is considered to be the “majors”. They all contain the USD on one side. These are the most widely traded currency pairs in the world, and also the most liquid.

Currency Pair Countries FX Terminology
EUR/USD Euro zone/United States “euro dollar”
USD/JPY United States/Japan “dollar yen”
GBP/USD United Kingdom/United States “pound dollar”
USD/CHF United States/Switzerland “dollar swissy”
USD/CAD United States/Canada “dollar loonie”
AUD/USD Australia/United States “aussie dollar”
NZD/USD New Zealand/United States “kiwi dollar”

Major Cross-Currency Pairs and Minor Currency Pairs

Currency pairs that do not have the USD as one of the pairs are known as cross-currency pairs, or just crosses. Just to confuse matters, major crosses are also known as “minors”. The currencies that are traded most often include the three major currencies that are not the USD, namely the GBP, EUR and JPY.

Here are tables showing the most commonly traded crosses:

Pound Crosses:

Pair            Countries                                 FX Terminology

GBP/CHF    United Kingdom/Switzerland     “pound swissy”
GBP/AUD    United Kingdom/Australia       “pound aussie”
GBP/CAD    United Kingdom/Canada       “pound loonie”
GBP/NZD    United Kingdom/New Zealand   “pound kiwi”

Euro Crosses:

Pair            Countries                             FX Terminology

EUR/CHF    Euro zone/Switzerland            “euro swissy”
EUR/GBP    Euro zone/United Kingdom    “euro pound”
EUR/CAD    Euro zone/Canada            “euro loonie”
EUR/AUD    Euro zone/Australia            “euro aussie”
EUR/NZD    Euro zone/New Zealand            “euro kiwi”

Yen Crosses

Pair            Countries                             FX Terminology

EUR/JPY    Euro zone/Japan                    “euro yen” or “yuppy”
GBP/JPY    United Kingdom/Japan            “pound yen” or “guppy”
CHF/JPY    Switzerland/Japan            “swissy yen”
CAD/JPY    Canada/Japan                     “loonie yen”
AUD/JPY    Australia/Japan                     “aussie yen”
NZD/JPY    New Zealand/Japan            “kiwi yen”

Then there are other currency pairs which are known as “exotics”. Since you ask, exotic pairs are not celebrities on their third or fourth marriage. They are simply combinations of a major currency which is paired with the currency of an emerging economy such as Hungary, or Brazil for instance.

You might see a number of different “exotics”, which will depend on your broker. These exotics are not nearly as heavily traded as the major or cross currency pairs, so the cost of entering a transaction is usually higher.

It is quite common to see spreads that are two or three times greater than something such as the USD/GBP or EUR/JPY, so remember to take this into account if you want to trade in exotics.