#TradingPairs101 In the foreign exchange (forex) market, you always trade currency pairs. This means that you simultaneously buy one currency and sell another.

What is a currency pair?

A currency pair shows the exchange rate between two currencies. The first currency is called the base currency and the second is the quote currency. For example, in EUR/USD, the euro (EUR) is the base currency and the US dollar (USD) is the quote currency. If the rate is 1.0850, this means that 1 euro is worth 1.0850 US dollars.

How does trading work?

* Buying a pair (for example, EUR/USD): You buy the base currency (EUR) and sell the quote currency (USD). You do this if you expect the value of the base currency to increase relative to the quote currency.

* Selling a pair (for example, EUR/USD): You sell the base currency (EUR) and buy the quote currency (USD). You do this if you expect the value of the base currency to decrease relative to the quote currency.

Types of pairs:

* Major Pairs: Involve the US Dollar (USD), e.g. EUR/USD, USD/JPY, GBP/USD. These are the most traded.

* Minor/Cross Pairs: Involve two major currencies but not the USD, e.g. EUR/GBP, EUR/JPY.

* Exotic Pairs: Involve one major currency and a currency from an emerging economy, e.g. USD/MXN. These are less liquid and more volatile.

Understanding currency pairs is the foundation of forex trading. Keep in mind that trading currencies carries significant risk.