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Every currency pair has two parts: the base currency (first) and the quote currency (second). EUR/USD tells you how many US dollars one euro is worth — if the pair reads 1.1050, one euro buys $1.1050.
Pairs are grouped into majors (pairs with the US dollar and a major economy, like EUR/USD or USD/JPY), minors (major currencies without the dollar, like EUR/GBP), and exotics (a major currency paired with an emerging-market currency, like USD/TRY). Majors are the most heavily traded and typically have the tightest spreads.
The spread — the small gap between the buy (ask) and sell (bid) price — is effectively the cost of entering a trade. Tighter spreads on major pairs are one reason beginners are usually advised to start there rather than with exotics.
Real-World Example
When a trader sees EUR/USD quoted at 1.0850, they're reading that 1 euro (the base currency) equals 1.0850 US dollars (the quote currency). If the trader believes the euro will strengthen against the dollar, they buy EUR/USD; if the pair then rises to 1.0900, closing the position captures that 50-pip move. The exact same logic in reverse applies to USD/JPY: since USD is the base currency there, a rising USD/JPY quote means the dollar is strengthening against the yen, not weakening — a distinction that trips up beginners who assume the first currency listed is always the one strengthening, regardless of which side of the pair it's actually on.
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