Reading a Currency Pair Quote: Base vs. Quote
A forex price is always written as a pair because you are comparing one currency to another. The first currency is the base currency; the second is the quote currency.
- EUR/USD: EUR is the base, USD is the quote.
- The quote tells you: how many units of the quote currency are needed to buy 1 unit of the base currency.
Example: EUR/USD = 1.1000 means 1 EUR costs 1.10 USD. If EUR/USD rises from 1.1000 to 1.1050, the euro has strengthened versus the dollar (or the dollar has weakened versus the euro).
What “Buy” and “Sell” Mean in a Pair
When you trade a pair, you are simultaneously buying one currency and selling the other.
- Buy EUR/USD: you are buying EUR and selling USD. You benefit if EUR/USD rises.
- Sell EUR/USD: you are selling EUR and buying USD. You benefit if EUR/USD falls.
Bid, Ask, and Spread (How Quotes Appear on a Platform)
Most platforms show two prices:
- Bid: the price you can sell at.
- Ask: the price you can buy at.
- Spread = Ask − Bid (a key trading cost).
Example quote:
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EUR/USD Bid 1.1000 Ask 1.1002The spread is 0.0002 (2 “pips” for most USD-quoted major pairs). If you buy, you enter at 1.1002; if you immediately sell, you would exit at 1.1000, realizing the spread cost.
Interpreting Price Moves: Pips and “What Changed?”
For many pairs quoted to 4 decimal places (like EUR/USD), a pip is typically the 4th decimal place (0.0001). For JPY pairs (like USD/JPY), a pip is often the 2nd decimal place (0.01). Some brokers show an extra digit (a “pipette”), which is one-tenth of a pip.
- EUR/USD from 1.1000 to 1.1010 = +10 pips.
- USD/JPY from 145.20 to 145.50 = +30 pips.
Practical interpretation: if EUR/USD moves up 10 pips, the base currency (EUR) strengthened relative to the quote currency (USD) by that amount.
Majors, Minors, and Crosses: What They Are and Why It Matters
Major Pairs
Major pairs are the most traded pairs globally, typically involving the USD and a highly traded counterpart. Common examples include:
- EUR/USD
- GBP/USD
- USD/JPY
- USD/CHF
- AUD/USD
- USD/CAD
- NZD/USD
Practical implications (typical conditions):
- High liquidity during their active sessions (more participants, more orders).
- Lower average spreads (often among the tightest on most brokers).
- More consistent execution (less slippage in normal conditions).
- Strong sensitivity to top-tier news for the currencies involved (e.g., U.S. CPI impacts most USD majors).
Minors (Non-USD Majors)
Minor pairs are pairs that do not include USD but still involve major economies/currencies. Examples:
- EUR/GBP
- EUR/JPY
- GBP/JPY
- AUD/JPY
- EUR/CHF
Practical implications:
- Liquidity is often lower than the top USD majors, especially outside overlapping sessions.
- Spreads are usually wider than EUR/USD or USD/JPY, though still reasonable in active hours.
- Can react sharply to region-specific news (e.g., EUR/GBP to ECB vs. BoE surprises).
Crosses (General Use)
In everyday trading language, crosses often refers to non-USD pairs (many traders use “minor” and “cross” interchangeably). The key idea is: they are not the most liquid USD-centered pairs, so costs and behavior can differ.
One practical detail: many crosses are effectively “built” from two USD legs in the interbank market (e.g., EUR/GBP can be influenced by EUR/USD and GBP/USD flows). This can matter when USD news causes broad repricing.
Liquidity, Spreads, and News Sensitivity: What to Expect
Typical Liquidity and Spread Patterns
| Category | Examples | Typical Liquidity | Typical Spread (relative) | Common Behavior |
|---|---|---|---|---|
| Majors | EUR/USD, USD/JPY | Highest | Lowest | Smoother price discovery, usually better fills |
| Minors / Crosses | EUR/GBP, GBP/JPY | Medium | Medium to higher | Can move fast; spreads widen more off-hours |
| Thin / less-traded pairs | Some exotic or illiquid crosses | Low | Highest | More gaps, more slippage, sudden spread spikes |
Spreads are not fixed: they typically widen during low-liquidity times (late U.S. session, around daily rollovers), during major news releases, and when markets are stressed.
News Sensitivity: “Which Calendar Matters?”
A pair is most sensitive to news that directly changes expectations for either currency.
- EUR/USD: ECB decisions, U.S. inflation/jobs, risk sentiment.
- GBP/JPY: Bank of England surprises, Japan policy, and global risk-on/risk-off swings (JPY can strengthen quickly in risk-off moves).
- EUR/GBP: relative ECB vs. BoE expectations; can be less directly affected by U.S. data, but USD-driven risk moves can still spill over.
Selecting Pairs for Beginners: A Practical Process
Beginners usually improve faster by trading fewer pairs with high liquidity and lower spreads. This reduces costs and makes behavior more consistent.
Step-by-Step: How to Choose 1–3 Pairs to Start
- Start with majors: pick 1–2 from EUR/USD, USD/JPY, GBP/USD (depending on your trading hours).
- Match the pair to your active time: trade a pair when its main session is open (more liquidity). Example: EUR/USD is typically most active during London–New York overlap.
- Check typical spread on your broker: observe it during normal conditions (not during news). Prefer pairs with consistently tight spreads.
- Avoid “thin” times: if spreads widen noticeably at a certain hour (e.g., around rollover), do not force trades then.
- Add only after consistency: once you can execute your plan reliably on 1–2 pairs, consider adding a minor/cross you can explain (what moves it, which news matters, when it’s liquid).
Avoiding Thin/Liquidity-Poor Conditions (Practical Checks)
- Spread check: if the spread is 2–5× its usual size, conditions are likely thin or volatile; consider waiting.
- Candle/quote behavior: if price jumps in small bursts and fills feel worse than usual, liquidity may be poor.
- Time-of-day filter: avoid trading outside the pair’s active session unless you have a specific reason and accept higher costs.
- News filter: spreads can widen seconds before and after high-impact releases; if you are not trading news intentionally, stand aside.
Majors vs. Minors in the Same Session: Side-by-Side Examples
The goal of these examples is to show what you might reasonably expect regarding spread and movement when trading at the same time, under similar market conditions. Exact numbers vary by broker and market regime.
Example 1: London–New York Overlap (High Liquidity Window)
| Pair | Category | Observed Spread Tendency | Movement Tendency (intraday) | Practical Takeaway |
|---|---|---|---|---|
| EUR/USD | Major | Tight (often among the tightest) | Steady, responsive to EUR + USD headlines | Lower cost per trade; easier to manage small targets |
| EUR/GBP | Minor/Cross | Wider than EUR/USD | Can be choppy; reacts to relative EU/UK news | Costs matter more; patience helps (wait for clearer setups) |
| GBP/JPY | Minor/Cross | Often wider; can widen quickly on spikes | Can move fast; sensitive to risk sentiment | Position sizing and stops need more room; spreads can jump |
In the overlap, majors often provide the cleanest combination of tight spreads and reliable liquidity. Crosses can still be very tradable, but the spread and volatility profile can demand more careful risk sizing.
Example 2: Late U.S. Session (Liquidity Often Drops)
| Pair | Category | Spread Change vs. Overlap | Movement Tendency | Practical Takeaway |
|---|---|---|---|---|
| EUR/USD | Major | May widen modestly | Can slow down; occasional spikes on headlines | Still often manageable, but be selective |
| EUR/GBP | Minor/Cross | Can widen more noticeably | May become choppier with less follow-through | Higher cost + less movement can reduce edge |
| GBP/JPY | Minor/Cross | Can widen sharply at times | Can jump on risk moves; gaps more likely | Avoid if you rely on tight execution; consider standing aside |
This is why beginners are usually advised to avoid trading when liquidity is thin: you may pay more (spread/slippage) while getting less predictable movement.
Account Currency Impact: Why P/L May Look Different
Your trading platform displays profit/loss (P/L) in your account denomination (also called account currency), such as USD, EUR, or GBP. Even if you trade the same position size and the same pip move, the money value shown can differ depending on the account currency and whether conversion is needed.
How It Works in Practice
- If your account is in USD and you trade EUR/USD, P/L is naturally in USD because the quote currency is USD (conversion is straightforward).
- If your account is in EUR and you trade EUR/USD, your P/L may be converted from USD into EUR at the current conversion rate (or via your broker’s internal conversion).
- If your account is in USD and you trade GBP/JPY, your P/L is first determined in JPY terms (because JPY is the quote currency), then converted to USD for display.
Step-by-Step: What to Check So P/L Doesn’t Surprise You
- Confirm your account currency in your broker portal (e.g., USD vs. EUR).
- Know the pair’s quote currency: that’s the currency your raw P/L is most directly tied to.
- Expect conversion on non-matching quotes: if your account currency differs from the pair’s quote currency, your displayed P/L can fluctuate slightly due to conversion rates.
- Compare risk in account currency: when you set a stop-loss, focus on the platform’s estimated loss in your account currency, not only pips.
This is especially relevant when you trade multiple pairs with different quote currencies: two trades with the same pip stop can show different monetary risk once converted into your account denomination.
