Currency Pairs and Metals
How currency pairs are quoted, the difference between majors, minors and exotics, and why gold (XAU/USD) trades like a currency.
This lesson builds on: Introduction to Trading
Every forex price you will ever see is a comparison between two currencies. Understanding how pairs are quoted — and how the pairs differ from each other — is the vocabulary lesson everything later builds on. Get this solid and order types, spreads, and analysis all become easier.
How a pair is quoted
A currency pair is written as two three-letter codes: GBP/USD, EUR/JPY, USD/CAD. The first code is the base currency; the second is the quote currency. The price answers one question: how much of the quote currency does one unit of the base currency buy?
If GBP/USD trades at 1.2700, one British pound buys 1.27 US dollars.
When you buy a pair, you're buying the base and selling the quote — you profit if the base strengthens against the quote. When you sell the pair, the reverse. So "GBP/USD is rising" always means the pound is gaining on the dollar, whether that's because sterling is strong, the dollar is weak, or both.
Prices are quoted to four or five decimal places for most pairs, and a pip is the fourth decimal (0.0001). Yen pairs are the exception — quoted to two or three decimals, with a pip at the second (0.01). The fifth (or third, for yen) decimal is a pipette, a tenth of a pip. Sizes, meanwhile, come in lots: a standard lot is 100,000 units of base currency, a mini lot 10,000, a micro lot 1,000. For most major pairs, one pip on one standard lot is worth about $10; on a micro lot, about $0.10.
The majors
The major pairs all contain the US dollar paired with one of the other heavyweight currencies:
| Pair | Nickname | Traded character |
|---|---|---|
| EUR/USD | — | The most traded instrument on earth; deep liquidity, tight spreads, orderly moves |
| USD/JPY | — | Sensitive to US bond yields and risk sentiment |
| GBP/USD | Cable | More volatile than EUR/USD; loves London hours |
| USD/CHF | Swissy | The franc is a classic safe haven |
| AUD/USD | Aussie | Tied to commodities and China's economy |
| USD/CAD | Loonie | Tracks oil prices closely |
| NZD/USD | Kiwi | The Aussie's smaller, thinner cousin |
Majors account for the overwhelming bulk of daily forex volume. For a beginner they have three decisive advantages: the tightest spreads (lowest cost per trade), the deepest liquidity (your orders fill at fair prices, even in size), and the most analysis coverage (every bank and news desk discusses them daily).
Minors and crosses
A minor or cross pair is any combination of major currencies that skips the US dollar: EUR/GBP, EUR/JPY, GBP/JPY, AUD/NZD, and so on. Historically you'd trade these "through" the dollar in two steps; today they're quoted directly.
Crosses are entirely tradeable but slightly more expensive (wider spreads) and often more volatile — GBP/JPY in particular has a deserved reputation for fast, violent moves. They also let you express cleaner ideas: if you think the euro is strong and the pound is weak, EUR/GBP captures exactly that thesis without the dollar muddying it.
Exotics
An exotic pairs a major currency with an emerging-market or small-economy currency: USD/ZAR (South African rand), USD/TRY (Turkish lira), USD/MXN (Mexican peso), EUR/PLN (Polish złoty), USD/NGN where offered.
Exotics tempt newer traders with their huge daily ranges. Resist, at least for now. The costs are structurally against you:
- Spreads can be ten to fifty times wider than EUR/USD — you start every trade deep in a hole.
- Liquidity is thin, so slippage is common and stops can fill far from where you set them.
- Gaps and interventions: emerging-market currencies are exposed to abrupt policy moves, capital controls, and political shocks that no chart pattern anticipates.
- Swap costs on positions held overnight can be punishing because of large interest-rate differentials.
If you live in an emerging market, trading your home currency feels intuitive — you know its story. Know that the professionals on the other side of that trade have better information, better pricing, and thicker wallets. Majors are the fairer game.
Gold: XAU/USD
Gold has its own ISO code — XAU — and trades exactly like a currency pair against the dollar: XAU/USD is simply the dollar price of one troy ounce. Silver is XAG/USD.
Gold deserves its place beside the majors in this curriculum because it's one of the most actively traded instruments among retail traders, especially across the UK, Nigeria, and the Middle East. Its personality, though, is distinct:
- It trends hard. When gold moves, it tends to keep moving — which rewards trend-following and punishes stubborn counter-trend trades.
- It's a macro barometer. Gold responds to real interest rates (rising rates typically hurt it), the strength of the US dollar, and fear — wars, banking stress, and inflation scares all send money into it.
- It's volatile in dollar terms. A quiet day in gold can span $20+; a news day, $50 or more. Point-for-point, an equivalent position in gold usually carries far more risk than one in EUR/USD, so position sizes must be smaller for the same account risk.
What should a beginner actually trade?
Depth beats breadth. Pick one major — EUR/USD is the standard choice for its cost and orderliness — and optionally gold once you've learned position sizing. Follow them daily. Learn how they move in each session, how they react to news, what a normal day's range looks like. A trader who knows one pair intimately beats a trader who knows twenty pairs superficially, every time.