Forex Currency Pairs and Forex Quotes for Beginners

If you’re new to forex, you might be wondering: what are forex currency pairs and how do forex quotes work? Understanding forex currency pairs and forex quotes is one of the first steps a beginner trader should make before placing a trade. Without understanding these basic terms, you’re basically trading with your eyes closed!

In this beginners’ guide, we are going to break down the fundamental principles of forex currency pairs, the various types of major currency pairs and minor currency pairs, the best currency pairs to trade and how to read forex quotes confidently. Hopefully by the end of this course, you will have a clear understanding of forex currency pairs. Let’s not waste any time and dive in!

What Are Forex Currency Pairs?

When trading Forex, you’re not trading a single currency, instead, you’re always working with forex currency pairs. In other words, two currencies are being traded against each other. Let’s take EUR/USD as an example: EUR/USD represents the euro against the dollar, when trading this currency pair, you’re actually speculating on whether the euro will go up or go down against the dollar. But how does it work exactly? Assuming EUR/USD is trading at 1.1000, that means that 1 euro is worth 1.10 dollars, so if you believe that the euro will rise in value against the dollar, you would want to buy the pair. On the other hand, if you believe the value will fall against the dollar, you would want to sell it. Understanding the key principles of how forex currency pairs work is essential to choosing the right currency pairs for you.

Forex Currency Pairs: Understanding Forex Quotes

Now that we’ve looked into forex currency pairs, let’s explore forex quotes. What are they exactly? A forex quote allows you to determine the price of a currency in relation to another. Every forex currency pair quote has two prices:

1) The Bid Price: this is the price at which a broker is prepared to buy a base currency.

2) The Ask Price: this is the price at which a broker is prepared to sell a base currency.

Let’s explore some examples, take GBP/USD for instance, let’s assume it’s quoted at 1.3050/1.3052, so:

- You could sell at 1.3050 (bid).
- You could buy at 1.3052 (ask).

The difference between these two prices is the spread. So, every time you see the term ‘forex quotes’, keep in mind that the first currency is the base currency and the second currency is the quote currency. The quote currency is a representation of how much of the quote currency is needed in order to buy a unit of the base currency.

Types of Forex Currency Pairs

Forex pairs fall into three categories, let’s break them down starting with major currency pairs:

Why are they so popular amongst traders?

Major currency pairs consist of lower spreads, higher liquidity and generally more predictable behavior in terms of market movement. So if you’re just starting out, major currency pairs are known as the best currency pairs to trade.

Most popular Minor Currency Pairs:

EUR/GBP (Euro / British Pound)
EUR/AUD (Euro / Australian Dollar)
GBP/JPY (British Pound / Japanese Yen)
CHF/JPY (Swiss Franc / Japanese Yen)

Minor currency pairs are known to be slightly more volatile than majors as they have wider spreads, but they are still extremely popular amongst traders and can lead to outstanding trading opportunities.

Most popular Exotic Currency Pairs:

USD/TRY (US Dollar/Turkish Lira)
USD/SGD (US Dollar/Singapore Dollar)
USD/THB (US Dollar/Thai Baht)
USD/BRL (US Dollar/Brazilian Real)
EUR/HUF (Euro/Hungarian Forint)
USD/PLN (US Dollar/Polish Zloty)

Exotic currency pairs aren’t for beginners, they’re formed with a combination of one developing country and a smaller economy. They are more volatile and less liquid than majors and minors which makes them riskier for beginner traders. If you’re just starting out, stick to major and minor currency pairs until you become a confident trader.

How to choose the best Currency Pairs to trade:

Now that you have a better understanding of major currency pairs and minor currency pairs, let’s dive into the best currency pairs to trade. Here are a few things to consider before making your decision:

1) Volatility

Think about your risk tolerance and choose a currency pair based on its volatility. Although high volatility means more opportunities, it also comes with more risks. Major currency pairs are usually more stable, so more attractive to beginner traders.

2) Spreads

Tight spreads mean lower trading costs and major currency pairs usually have smaller spreads, take EUR/USD and USD/JPY as an example.

3) Trading Hours

Certain forex currency pairs are more active during specific times, so your location and trading hour preference makes a difference. Here are some examples:

GBP/USD tends to move more during the London and New York sessions.
AUD/JPY is usually more active during the Asian session.

4) News Sensitivity

Some forex currency pairs are more affected from certain economic events and geopolitical news than others. That means that if you’re not willing to keep an eye on current affairs, you might want to stick to currency pairs that aren’t as affected.

If you’re still not sure which currency pair to choose, we’ve narrowed down some beginner friendly best currency pairs to trade:

EUR/USD: This pair comes with high liquidity, low spreads, and lots of educational material available online
GBP/USD: This pair offers good volatility and plenty of trading opportunities
USD/JPY: This pair is known to be stable and responsive to economic indicators

If you’ve made it this far into the course, you now have an understanding of major currency pairs, minor currency pairs, best currency pairs to trade and forex quotes, so let’s explore some of the common mistakes that beginners make in forex currency pairs, so you hopefully don’t make the same mistakes.

Common Mistakes Beginners make with Forex Currency Pairs:

1) The first and most common is trading too many currency pairs at once. It’s recommended to stick to fewer major currency pairs until you become a confident trader.

2) Don’t ignore news events! Even stable currency pairs can be influenced by the news, so always make sure to do your research and stay up to date as an unexpected announcement can have a serious impact on forex quotes.

3) Do not make the mistake of misreading the quote. Beginner traders sometimes confuse the base and quote currency. Remember, with EUR/USD for example you are buying euros with the dollar.

4) Lastly, do not neglect spreads. Wider spreads can eat away into your profits, particularly with minor currency pairs.

By focusing on a few currency pairs that you feel confident with and by learning how to read forex quotes properly, you will already be miles ahead of many beginner traders! But remember, practice makes perfect, and the best way to get comfortable with forex currency pairs and forex quotes is to practice. The best way to do this is through a demo account. Open a demo account and try to understand how major currency pairs behave at different times of the day. You can also explore how the news affects minor currency pairs and test out which are the best currency pairs to trade to fit your own style and preferences.

Conclusion: Mastering Forex Currency Pairs and the Best Currency Pairs to trade:

Understanding forex currency pairs is the main foundation to any forex trader, from major currency pairs to minor currency pairs, each one has a different trading behavior and reacts differently to market forces. Learning how to read forex quotes and selecting the best currency pairs to trade will set you apart from beginner traders and put you on the right path towards becoming a successful trader.

So what’s the Next Step? Let’s sum it up!

1) Start with a demo account, test out different currency pairs, understand how they act and pick the pair that fits your trading style and goals.

2) Focus on a couple major currency pairs to get you started

3) Learn how to interpret forex quotes

4) As you get more and more confident, redefine your choice until you find the currency pair that fits you the best!

We hope you enjoyed this course on major currency pairs, minor currency pairs, best currency pairs to trade and forex quotes. But we still have plenty more trading tools to go through to get you from a beginner trader to a confident trader! So keep on reading the EC Markets Academy as we explore more trading courses!

Forex Currency Pairs and Forex Quotes