Forex Fundamentals
Currency Pairs Basics
Currency Pairs Basics
In This Lesson
Understanding major, minor, and exotic currency pairs.
Duration: 25 min
Overview
Understanding major, minor, and exotic currency pairs. This lesson will provide you with practical knowledge and actionable insights you can apply to your trading immediately.
By the end of this lesson, you'll have a clear understanding of the concepts and be able to apply them in real trading scenarios. Let's dive into the details.
Key Concepts
Major Currency Pairs
The most liquid pairs involving USD: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, USD/CAD, NZD/USD.
Base and Quote Currency
First currency is base (what you buy/sell), second is quote (what you pay with).
Pip Value and Calculation
Pip is smallest price move (usually 4th decimal). Pip value depends on position size and account currency.
Currency Correlations
Some pairs move together (positive correlation), others move opposite (negative correlation).
Cross Currency Pairs
Pairs not involving USD: EUR/GBP, GBP/JPY, AUD/CAD. Often more volatile with wider spreads.
Practical Application
Now let's put this knowledge into practice. Follow these steps to apply what you've learned:
- 1. Start with one major pair (EUR/USD recommended) to learn forex mechanics
- 2. Practice calculating pip values for different lot sizes in your account currency
- 3. Study correlations between major pairs using correlation tables
- 4. Compare spreads across different brokers for major vs minor vs exotic pairs
- 5. Monitor how economic news affects different currency pairs differently
- 6. Use small position sizes (0.01-0.1 lots) while learning pair characteristics
Common Mistakes to Avoid
Trading Exotic Pairs as a Beginner
Starting with exotic pairs like USD/TRY or EUR/ZAR which have wide spreads and unpredictable movements.
Not Understanding Correlation
Trading multiple pairs that move in the same direction, unknowingly multiplying risk instead of diversifying.
Ignoring Base vs Quote Currency
Not understanding which currency you're actually buying or selling in the pair.
Key Takeaways
- Major pairs offer best combination of liquidity, tight spreads, and predictability
- Understanding correlations prevents accidental over-concentration of risk
- Pip values change based on lot size and account currency - always calculate first
- Each currency reflects its country's economic health and monetary policy
- Start simple with majors, expand to minors/exotics only after mastering basics
Your Next Steps
Ready to continue your learning journey? Here's what to do next:
- • Review this lesson's key concepts
- • Complete the practical exercises
- • Take notes on what you've learned
- • Practice with a demo account
- • Move on to the next lesson when ready