Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Forex currency pairs
Currency pairs, which can be found within the foreign exchange market, measure the value of one currency against another. The currency pair is split into the ‘base’ currency, which is the first named currency; and the secondary currency, which is called the ‘quote’ currency. The price displayed shows how much of the quote currency is required to buy one unit of the base currency.
The foreign exchange market, also called the currency or forex (FX) market, is the world’s largest and most liquid financial market in the world, with over $5 trillion worth of currencies traded globally every day. Forex is always traded in pairs. This is because forex trading is simultaneously buying one currency and selling another. The currency pair itself can be thought of as a single unit, an instrument that is either bought or sold. Examples are the euro and US dollar (EUR/USD), or the British pound and Japanese yen (GBP/JPY).
What is currency trading?
Currency trading is divided into two parts. The first currency in an forex pair is known as the base. The base currency is the one that a trader thinks will go up or down against the second currency in the pair. This second currency is known as the quote or counter currency. Currency trading is divided into two parts. For example, if you buy pound versus US dollar (GBP/USD), you are anticipating a rise in the pound at the expense of the US dollar. Profit and loss is normally expressed in the amount of the secondary currency in forex trading. We explain more in our guide on how to trade currency.
Bid-ask currency example
Every currency pair has a bid and an offer price. This is the rate at which you can buy a currency, and the rate at which you can sell a currency. The price maker (usually a broker) gives you a rate at which they are willing to buy or sell a currency pair. Learn more about bid prices and ask prices.
The table below illustrates basic bid and offer prices.
Currency pair |
Quotation | Bid | Offer | Client buys | Client sells |
|---|---|---|---|---|---|
EUR/USD |
1.1200/01 | 1.1200 | 1.1201 | 1.1201 | 1.1200 |
GBP/USD |
1.5550/53 | 1.5550 | 1.5553 | 1.5553 | 1.5550 |
EUR/GBP |
0.7210/11 | 0.7210 | 0.7211 | 0.7211 | 0.7210 |
Currency pair |
|---|
EUR/USD |
GBP/USD |
EUR/GBP |
7 major forex pairs
There are many currency pairs for traders to choose from when placing a trade in the forex market. Major currency pairs are any pair that include the US dollar (USD), which currently holds the position of the largest economy in the world. Major pairs are the most widely traded currencies in the foreign exchange market. Here are the 7 major forex pairs that are considered to be the most popular across the world, all of which can be traded on using spread bets and CFDs:
Major forex pairs
The major pairs make up 75% of all forex trades. The majors are the most liquid and widely traded in the forex market. They make up the vast majority of all FX trades. Because these pairs have the largest volume of buyers and sellers, they also typically have the tightest bid (buy) and ask (sell) spreads. The spread is the difference between the buy and the sell price. Most traders would agree that the most profitable forex pairs to trade include the above seven major forex pairs.
Spread bet and trade CFDs on currency pairs
How currency pairs work
Let's use an example of spread betting to explain how currency pairs can be traded on, using the words buy/sell to represent long and short derivative positions.
The euro against the US dollar is a widely traded major forex pair. An example of a currency price is EUR/USD = 1.3560/1.35602 (sell rate/buy rate). In this instance, the euro is the base currency and the US dollar is the quote currency. To buy one unit of the base currency, the trader will have to pay 1.3562 in the quote currency - US dollars in this case. Conversely, if the trader wishes to sell one euro, they would receive 1.3560 US dollars.
What moves currency pairs?
Exchange rates fluctuate based on which currency is stronger at certain times. Traders seek out the best foreign exchange rate. These rates are supplied by global banks and updated in time periods of less than a second; the forex market is extremely fast-paced.
Commodities can also have an effect on currency pair prices. Commodity currencies are those from countries that have large quantities of commodities or other natural resources. The exchange rate of the currencies of these countries are tied to their respective export activities. This is because the strength of the economy can be highly dependent on the prices of their natural resources. Examples of these countries include Russia, Saudi Arabia and Nigeria.
What are the benefits of trading major currency pairs?
- All major currency pairs have very liquid markets that trade 24 hours a day, every business day.
- Due to major forex pairs being the most liquid and widely traded in the world, they will likely have tighter spreads. These tighter spreads reduce one’s dealing costs, and therefore increase the margin for profit.
- Trading hard currencies mean that it is less likely to depreciate suddenly or fluctuate much in value. It is a stable currency that is widely accepted and typically liquid in the forex market.
- Central banks tend to raise interest rates when the economy is growing, and cut them to stimulate a struggling economy. These interest rates govern the forex market. This is because a currency’s interest rate is such a big factor in determining its perceived value.
How to trade forex starting with one pair
Forex trading offers frequent trading opportunities, as currency prices are constantly fluctuating in value against each other. FX trading allows traders to speculate on all the major currency pairs. The only limit to which currency pairs can be traded are the pairs and quantity offered by the trading platform individual traders choose.
The three main types of currency pairs are majors, minors (crosses) and exotics. The major currency pairs are often the most popular to trade, as they are the most liquid. That is to say these pairs have the highest trading volume. Minor currency pairs are ones which leave out the United States dollar, and they are normally less liquid. Examples include the euro and Swiss franc (EUR/CHF), Canadian dollar and Japanese yen (CAD/JPY), or pound sterling and Australian dollar (GBP/AUD). Cross pairs can provide trading opportunities when the majors are presenting less favourable conditions.
There are also exotic currency pairs. These are the least traded in the forex market, and are less liquid than the cross pairs. Prices can fluctuate greatly, and due to the lower volume of trades, spreads can be wide. There also tends to be less historical data on these pairs, so those relying on technical analysis may find information harder to come by.