A Peek Into Currency Pairs

A currency pair comprises of two currencies involved in a forex transaction. While there could be numerous currency pairs that could be traded in the forex market, following are the four major currency pairs that account for 70% of the total daily trade of US$1.7 trillion conducted on the forex market. These pairs include:

• Euro/US Dollar - EUR/USD
• Great Britain Pound/ US Dollar - GBP/USD
• US Dollar/ Confoederatio Helvetica Franc - USD/CHF
• US Dollar/ Japanese Yen - USD/JPY

Other Currency Pairs
In addition to the four major pairs, the following currency pairs also trade frequently in the forex market. These currency pairs are nicknamed minor currency pairs:

• Australian Dollar/US Dollar - AUD/USD
• US Dollar/Singapore Dollar – USD/SGD
• US Dollar/Korean Won – USD/KWR
• US Dollar/China Yuan – USD/CNY or RMB

Some others are:

• US Dollar/Canadian Dollar - USD/CAD
• US Dollar/South African Rand – USD/ZAR
• US Dollar/Mexico Peso – USD/MXN
• US Dollar/Swedish Krona – USD/SEK

Reference & Quote Currency
The first currency in a currency pair is called the reference or base currency, while the second is known as the quote or counter currency. The amount of transaction is denominated in the reference currency, while the profit or loss is always expressed in the quoted currency. For example, in the currency pair USD/JPY (US Dollar/Japanese Yen), USD is the reference currency and JPY is the quote currency. Thus, the transaction amount will be in US dollars, while the profit or loss will be calculated in Japanese yen.

Cross Currency Pairs
Cross currency pairs are those currency pairs that do not have the US dollar in the pair. Cross currency pairs that witness slow price moves are ideal for traders who are beginners in the forex market. Cross currency pairs can also be used as a portfolio diversification tool to hedge risk and maximize returns. Cross currency pairs are of two types:
• Euro Cross Currency Pairs: These are pairs that involve the euro as the reference currency.
• Euro/Japanese Yen – EUR/JPY
• Euro/Swiss Francs – EUR/CHF
• Euro/Great Britain Pound – EUR/CHF

Other Cross Currency Pairs: These do not involve the euro or any other currency as the common reference currency:

• Malaysian Riggit/Singapore Dollar – MYR/SGD
• Singapore Dollar/Thai Baht – SGD/THB
• Australian Dollar/New Zealand Dollar – AUD/NZD
• Great Britain Pound/Japanese Yen – GBP/JPY