#TradingPairs101

Trading pairs are the essence of financial markets, especially in global currency markets, where the value of one currency is determined against another. Each pair consists of two currencies: the base currency and the quote currency. For example, in the euro/dollar pair, the euro is the base currency, and the dollar is the quote currency. The price shows how much of the quote currency is needed to buy one unit of the base currency.

Trading pairs are classified into three main groups:

* Major pairs: Always include the US dollar, characterized by very high liquidity and narrow spreads (the difference between the buying and selling prices). They are the most traded globally.

* Cross pairs: Do not include the US dollar, but combine two other major currencies, such as euro/pound sterling. Their liquidity may be lower than that of major pairs.

* Exotic pairs: Consist of a major currency and a currency from an emerging or small economy. They are characterized by significant price volatility and low liquidity, which means wider spreads and higher risks.

Understanding the characteristics of each type of these pairs is vital for any trader, as it directly impacts how they plan their trades and manage risk.