What is a Currency Pair?

Currency Pair Definition. A Currency Pair consists of the two currencies that make up a foreign exchange rate. Currency pairs are written by linking together the ISO currency codes (ISO 4217) of the base currency and the counter currency, separating them with a slash character. Often the slash character is omitted. Dealing in currencies can be confusing at the start because you must always deal with a currency pair. The first currency in the pair is the “Base” currency. The second currency in the pair is labeled the “Quote” currency or “Counter” currency. A quotation then defines how many units of the counter currency are needed to buy one unit of the base currency. The quotation of a currency pair usually consists of two prices, much as with stocks traded on an exchange. The “Bid”, usually lower than the “Ask”, is the price at which a market maker or a broker is willing to buy the base currency in exchange for the quote currency. Ask or Offer, usually higher than Bid, is the price at which a broker is willing to sell the base currency in exchange for the quote currency. If the Bid price for a EUR/USD pair is 1.2750 and the Offer price is 1.2752, the difference, 2 “pips” in forex trader slang, is referred to as the “spread”. Most forex brokers derive their trading profits from the spread, so it is beneficial to review broker spreads before transacting trades. In this example you would pay $1.2752 to acquire one Euro.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.