Base and quote
A pair is written as two three-letter codes separated by a slash. The first is the base currency and the second is the quote currency, and the price is how many units of the quote currency one unit of the base is worth. GBP/USD at 1.35 means one pound buys 1.35 dollars. Buying the pair means buying the base and selling the quote; selling the pair means the reverse. A trader who thinks the pound will strengthen against the dollar buys GBP/USD, and a trader who thinks it will weaken sells it.
The convention for which currency goes first is historical. The euro is the base against everything; the pound is the base against everything except the euro; the dollar is the base against most other currencies except those two, the Australian and New Zealand dollars. That is why USD/JPY rises when the dollar strengthens but EUR/USD rises when the dollar weakens, which trips up most people at least once.
Majors, crosses and exotics
The majors are the pairs of the US dollar against the other large currencies: EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD and NZD/USD. They carry the bulk of the market's volume, the tightest spreads and the smallest swaps, and EUR/USD alone is roughly a quarter of all trading. A new trader has no reason to start anywhere else.
Crosses are pairs that do not include the dollar: EUR/GBP, EUR/JPY, GBP/JPY, AUD/NZD and so on. Their prices are derived from the two dollar rates and their spreads are a little wider. Exotics pair a major currency with a smaller or less freely traded one: USD/TRY, USD/ZAR, EUR/PLN, USD/MXN. They have wide spreads, large swaps, sharp moves and, at many brokers, lower leverage, and they are where a trader's costs are easiest to underestimate.
How a pair is quoted
A broker shows two prices for every pair: the bid, at which it will buy the base currency from you, and the ask, at which it will sell it to you. You buy at the ask and sell at the bid, and the difference between the two is the spread. Most pairs are quoted to five decimal places, so EUR/USD might show 1.16012 bid and 1.16019 ask, a spread of 0.7 pips. Yen pairs are quoted to three decimal places because the numbers are larger.
What moves a pair
A pair moves when the market's view of one currency changes relative to the other. Interest rates and expectations about them are the biggest single influence, because a currency that pays more interest attracts money, which is also why the swap on a pair follows the rate difference. Economic data, central bank statements, political events, commodity prices for currencies like the Australian and Canadian dollars, and flows of money into and out of a country's assets all play a part. The fundamental and technical analysis article covers the two broad ways traders try to read those influences.
Educational content is general information and does not consider your objectives, financial situation or needs. Forex and CFD trading involves significant risk.