Welcome to Lesson 2 of our free Forex Trading Course Toronto at The Academy of Financial Markets! After exploring the basics of forex trading, including its differences from stock trading, the role of leverage, and factors driving currency values, we now focus on currency pairs. Understanding currency pairs is essential for anyone aiming to learn Toronto Forex and advance in our Stock Trading Course Toronto.

What Are Currency Pairs?

In forex trading, currencies are traded in pairs because the value of one currency is always relative to another. A currency pair displays the exchange rate, showing how much of the quote currency is needed to purchase one unit of the base currency. For instance, in EUR/USD, EUR is the base currency, and USD is the quote currency. A rate of 1.10 means one Euro equals 1.10 US Dollars. This concept is a cornerstone of our Forex Trading Course Toronto, critical for achieving trading proficiency.

When you trade a currency pair, you’re speculating on the relative strength of one currency against another. Buying EUR/USD indicates you expect the Euro to strengthen against the US Dollar; selling suggests the opposite. Pairs are quoted with a bid (sell) and ask (buy) price, with the spread representing the broker’s fee. Our Online Forex Mentorship provides guidance on interpreting these quotes and executing effective trades.

Types of Currency Pairs

Currency pairs are divided into three categories: majors, minors, and exotics. Each type has unique characteristics, and understanding them is a key component of our Forex Mentor programs.

Major Pairs

Major pairs feature the US Dollar paired with another major currency, such as EUR/USD (Euro/US Dollar), GBP/USD (British Pound/US Dollar), or USD/JPY (US Dollar/Japanese Yen). These pairs dominate, accounting for about 80% of forex trading volume, with high liquidity and tight spreads, ideal for beginners embarking on their Toronto Forex journey.

Minor Pairs

Also known as cross-currency pairs, these exclude the US Dollar, such as EUR/GBP (Euro/British Pound) or AUD/NZD (Australian Dollar/New Zealand Dollar). They offer less liquidity but provide diversification opportunities. Our Forex Trading Academy Toronto teaches strategies for analyzing these pairs effectively.

Exotic Pairs

Exotic pairs combine a major currency with one from an emerging or smaller economy, like USD/TRY (US Dollar/Turkish Lira) or EUR/ZAR (Euro/South African Rand). These have wider spreads and higher volatility, increasing risk. At The Academy of Financial Markets, we recommend mastering major pairs before exploring exotics.

How Currency Pairs Work in Practice

Let’s explore a practical example. Suppose EUR/USD is quoted at 1.1050 (bid) and 1.1052 (ask). Buying one lot (100,000 units) means purchasing 100,000 Euros for 110,520 US Dollars (100,000 x 1.1052). If the pair rises to 1.1152, selling yields a $1,000 profit (100,000 x [1.1152 – 1.1052]). Leverage can amplify both gains and losses, a topic we explore in depth in our Financial Markets Education Toronto.

Currency pair prices move based on supply and demand, influenced by factors like interest rates, economic reports, and global events. For example, a US Federal Reserve rate hike could strengthen the USD, causing EUR/USD to decline. Mastering these dynamics is vital for success in Learn Forex Toronto.