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Currency pair

Category — General Notions

A currency pair is the ratio of the prices of two currencies. In other words, it reflects the value of the currency of one country through the currency of another. A currency pair is formed from the codes of two currencies, which usually have a format consisting of three Latin letters. The first one is the base currency. It is this currency that you buy or sell when making transactions with a pair. The second one is the quote currency of the pair; it denominates the price of the base currency. That is, when you buy a GBP/USD pair, you buy a pound sterling for a US dollar, and when you sell, you get a US dollar by selling a pound.

There are no strict standards on the position of the currency is in a pair, but as a rule, the choice of the first currency in a pair is related to its relative value for ease of calculation. For instance, in the USD/JPY pair, the dollar is more expensive than the yen, so the dollar comes first. In the GBP/USD pair, the pound is more expensive than the dollar, so the pound is the base currency in this pair.

If we consider a given country, the quotation of a currency pair that contains the national currency can be interpreted as direct and indirect. In a direct quotation, the value of a foreign currency is expressed in national currency (i.e., the national currency is quoted), in an indirect quotation, vice versa. For example, in Japan the USD/JPY pair will be a directly quotation, in the UK the GBP/USD pair will be an indirect one.
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