Currency trading always happens in pairs. Understanding how these pairs work is foundational to navigating the forex market.
What are currency pairs?
Each currency pair consists of two currencies. The first is the base currency, and the second is the quote currency. If the EUR/USD is quoted at 1.10, it means one euro is worth 1.10 US dollars. You are essentially buying one currency while selling another at the same time.
This pricing structure allows investors to profit from movements in exchange rates by anticipating how one currency will perform against the other.
Major, minor and exotic pairs
Major pairs include the most traded currencies globally, such as EUR/USD, GBP/USD, and USD/JPY. These are popular for their liquidity, tighter spreads and availability of economic data.
Minor pairs exclude the US dollar, combining other developed currencies like EUR/GBP or AUD/NZD. These often have slightly wider spreads but still maintain good trading volumes.
Exotic pairs involve a major currency and one from an emerging economy, such as USD/THB or EUR/ZAR. These pairs can offer larger price swings and higher potential returns, but they come with increased volatility and risk.
What moves currency pairs?
Currency values are shaped by a mix of macroeconomic indicators and market sentiment. Interest rates, inflation data, GDP releases, employment figures and central bank policy decisions are key drivers.
Political events, natural disasters, trade relations and risk appetite also play a role. A single announcement — like a surprise rate hike or geopolitical shock — can shift prices quickly.
Why liquidity matters
Liquidity refers to how easily a currency pair can be bought or sold without affecting its price. Major pairs tend to be more liquid, which helps reduce trading costs and slippage.
Exotic pairs may have lower liquidity, making them prone to wider spreads and sudden price spikes. Investors need to weigh potential reward against execution risk.
GUILD Capital focuses on high-liquidity forex strategies that prioritise clarity, speed and institutional execution. Our clients benefit from targeted access to the most effective pairs and macro themes in the market.
