There are several currency pairs that can be traded, but the majority of traders just stick with a group of about 8 to 10 pairs. First up, we have what they call the ‘majors’. These are by far the most popularly traded currency pairs.

The majors include:

EUR/USD Euro against the US dollar

USD/JPY US dollar against the Japanese yen

GBP/USD Great Britain pound against the US dollar

USD/CHF US dollar against the Swiss franc

Notice how they are all against the US dollar, therefore when traders discuss these pairs, we simply just refer to them as the Euro, Yen, Pound and the Swissy.

Then we have what we call the ‘2nd tier pairs’ and these include the following:

AUD/USD Australian dollar against the US dollar

USD/CAD US dollar against the Canadian dollar

NZD/USD New Zealand dollar against the US dollar

Again, these pairs are all against the US dollar, so they are simply referred to as the Aussie, Loonie and Kiwi. The term Loonie actually comes from the first Canadian dollar coin.

Then there are currency pairs which are called the ‘crosses’, and these involve non-US dollar pairs. Some of the more popular crosses include:

EUR/JPY Euro against the Japanese yen

GBP/JPY Great Britain pound against the Japanese yen

EUR/GBP Euro against the Great Britain pound

There are a couple of others, but these three are the most popularly traded. A lot of traders prefer to trade their home currency as they feel they have a better understanding of it. Personally, I’m Australian, but I rarely trade the Aussie as I am very comfortable trading the majors for the majority of my trades.

What do all the numbers mean when the currency pairs are traded together? 

The first currency mentioned is what they call the ‘base currency’ and it is being compared to the 2nd currency, which is called either the ‘quote currency’ or the ‘counter currency’.

If I watch my local news, and near the end they have a very brief financial report where the newsreader may say something like:

“The Aussie dollar was down today against the greenback, reaching a low of 69 cents”

Basically, what they are saying is that the Australian dollar has dropped in value compared to the US dollar, and that one Australian dollar is equivalent to $0.69 US. As the US dollar is the major currency of the world, you will find most financial reports will compare your local currency to it, and even some of the other majors such as the Euro or the Great Britain pound.

Using this same example of the Aussie at 69 cents if I were to travel overseas, say to the US where I would need US dollars, then I would be hoping for as high a rate as possible so I get more for my Australian dollar. So, if the exchange rate moved up to 73 cents, then one Australian dollar would be worth $0.73 US.  You may see the quote for the AUD/USD similar to this: 0.6925 / 0.6928.

I’ll explain shortly why there are two sets of numbers. But just looking at 0.6925, this shows how many units of the quote/counter currency are needed to buy one dollar of the base currency. In this case, the US dollar is the quote/counter currency and the Australian dollar is the base currency, so US$0.6925 is equal to AU$1.00. So, if I travelled to the US, each Aussie dollar I have is worth about 69c US.

Forex Pairs – What do the numbers mean?  

Let’s consider a pair example: If the AUD / USD were quoted at 0.6925 / 0.6928, what exactly does this mean?

The first figure of 0.6925 is called the ‘bid’ price

The 2nd figure of 0.6928 is the ‘ask’ price

The difference between these two figures is called the ‘spread’

At this time if I was to buy the Aussie, thinking that the Australian dollar is going to go up in value compared to the US dollar, I would be required to pay the ASK price, which in this case is 0.6928. On the other hand, if I thought the Aussie was becoming weaker against the US dollar and I wished to sell it, then I would sell it at the BID price of 0.6925.

Now if I was to buy the Aussie at 0.6928 and then immediately close my position before the price had a chance to move, I would have to close the position by selling the Aussie at 0.6925.

Now there is a difference of 0.0003, which is called the spread, and that would be the amount I lost on this trade. In the case of the Aussie, each 0.0001 move is called a pip (or sometimes referred to as a point). So, on this trade, I would have lost 3 pips (or 3 points).

All the pairs I mentioned above, except the JPY pairs, normally have four decimal places, and their pip value is calculated the same as the above Aussie example. The JPY pairs usually only have the two decimal places. An example of the USD/JPY could be quoted as follows:

97.81 / 97.83.

This tells me that one US dollar is equal to approximately 97.8 Japanese yen.

The bid price is 97.81 and the ask price is 97.83, resulting in a 2 pip spread. In this case each 0.01 move is called a pip.

Important: Most brokers these days have an extra decimal place on their quoted prices. This has come about as the result of spreads becoming tighter over the years. Some traders also believe that this was introduced to help with the broker’s bottom line as they can further manipulate spreads in their favour; and can confuse the unsuspecting Trader at times. Not everyone is happy with this introduction.

When I first started trading, a small spread on the EUR/USD was 3 pips, whereas nowadays it is common to see the spread on this pair at 0.8 of a pip or even less. Hence the addition of this extra decimal point on the quoted prices. If you see three or five decimal places and depending on how precise your trading is, I would suggest you just ignore the very last digit. That is the simplest way.

For example, if you saw a quote for the EUR/USD as 1.38641 / 1.38663, you would simply read it as 1.3864 / 1.3866 by dropping the last digits. Then you can see that you have a spread of 2 pips. This is just to keep it simple. If you wanted to be precise, in this example you would simply take 4.1 away from 6.3 to give you an exact spread of 2.2 pips. These are just the last two digits on the quote where the 2nd last digit is an actual whole number of pips, with the last digit representing a fraction of a pip. It can be very confusing at first. Me, I just round it up or down depending which side of 0.5 I am on, just to keep it very simple.