What Are the Major Foreign Exchange Pairs?

by Andrew Horowitz

In our last article, we discussed the basic information on the Forex market and how to read a Forex quote.  In this article, we'll take it one step further, and talk about the six major Forex pairs in the foreign exchange market.

In a quick recap, we learned how to read a Forex quote and we used the euro-U.S. dollar--or EURUSD--as an example.

A Forex quote is a ratio that compares two currencies using two numbers—called a pair. The first currency in a pair – remember when dealing with currency, we always compare one currency to another is called the base and it is always valued at 1. The second currency in the pair, or ratio answers the question "How many dollars does it take to buy one euro?" or "How many of this currency does it take to get one of the base currency?"

The Euro and U.S, Dollar Pair

With the EURUSD currency pair at 1.50, this means that it would take 1.50 dollars to convert into one single euro, or $150 to buy you 100 euros.

As you might have guessed, the euro-U.S. dollar currency pair is the most widely traded in the world, as companies have to convert back and forth between euros and U.S. dollars all the time to do business and travelers have to convert back and forth when going to and from Europe and the United States.

The U.S. Dollar and Japanese Yen Pair

The second major currency pair example is the U.S.-dollar and Japanese yen, or the USDJPY pair. 

This time since we are saying US Dollar to Yen, the U.S. dollar is the base in the pair, which means the ratio tells you how many Japanese yen it takes to buy one U.S. dollar. So, if the ratio is rising, then the U.S. dollar is strengthening against the yen. 

Japan is a major business and trading partner of the United States, so it makes sense that this would be a major currency pair, and one in which businesses and travelers must convert back and forth frequently

If you wanted to see the current exchange rate, you would use the symbol USDJPY. At the end of 2009, that rate was about 87, meaning that it takes 87 Japanese yen to convert into one U.S. dollar. 

The Pound and U.S, Dollar Pair

The third major currency pair is the exchange between Great Britain and the United States. Use GBPUSD to check the currency cross in your favorite charting platform to see how many British pounds it would take to buy one U.S. dollar.

Near the end of 2009, the currency pair rate is just under 1.70, meaning that it takes 1.70 U.S. dollars to convert into a single British pound. In early 2008, this pair was quoted at 2.0, which means that it would take 2 dollars to get 1 British pound, or would take $200 US Dollars to get 100 worth of British pounds--not fun for Americans!

Remember, because the British pound is the base of the Forex pair, a rising ratio means the British pound is getting stronger against the dollar (which means it would take more dollars to convert into one pound), and a falling ratio means the British pound is getting weaker against the dollar (which means it would take fewer dollars to convert into a single pound).

These are the top-three Forex pairs most investors and traders are watching as a reference of the world’s markets and.

Forex Fun

For a little fun, I wanted to share some of the more interesting phrases that Forex investors use for trading or discussing these pairs. The next time you hear these words, you'll finally know what they mean!

I'm sure you've heard the U.S. dollar called the "greenback" or the "buck" and that's how some traders refer to it.

If you've ever wondered what the word "cable" was in relation to Forex, it refers to the British pound, which is in reference to the undersea communication cable that connected Great Britain and the United States. The British pound is also called the "sterling."

So, if someone says something like "cable/greenback," he is referring to the British pound/U.S. dollar cross.

Do You Know What a Loonie Is?

One of my favorite Forex terms is the "loonie," which sounds like a crazy bird, but is really the Canadian dollar. No, Canada does not use the same U.S. dollars we in the United States do-- they have their own Canadian dollar, more commonly called the loonie.

In other interesting Forex terms, the "Aussie" refers to the Australian dollar and the “kiwi” refers to the New Zealand dollar.

Now you'll be able to understand what all your Forex trading friends are saying!

Keep with us as we discuss even more ways to become a winning investor in our next article!

And, don’t forget, following the ongoing markets are always in focus on my weekly Podcast – The Disciplined Investor. Subscribe through iTunes and listen in to experts and investors discussing markets and more…

And if you like the show, tell a friend or leave a review on iTunes. Until next time, this is Andrew Horowitz with The Winning Investor’s Quick and Dirty Tips for Beating the Market wishing you all the best on your quest to investment success.