Currency Pair
Two currencies quoted against each other, showing how much of one buys the other.
Also called: fx pair · pair
Written by Javier Sánchez Ros
In plain language
A pair like EUR/USD quotes the euro in terms of dollars. Buying the pair means buying euros and simultaneously selling dollars.
Every forex trade is therefore two positions at once. You are always long one currency and short another.
This is why forex has no true "short". Selling EUR/USD is simply buying USD/EUR, which is one reason there are no borrow costs.
Worked through
Long EUR/USD, long GBP/USD and long AUD/USD, each risking 1%
- Positions open
- 3
- Risk per position
- 1%
- Risk as it appears
- 3%
- Shared short leg
- USD ×3
Three separate tickets, three separate charts, three separate 1% risks. The blotter says the book is diversified across Europe, Britain and Australia.
It is not. Every one of those trades is long something and short the dollar. There is one bet here, taken three times: the dollar falls. A strong US inflation print moves all three against you at once, and the 3% that looked like three independent chances to be wrong behaves like a single 3% bet on one number.
This is the part of forex that catches people who came from equities. Buying three unrelated stocks really does spread the risk. Buying three dollar pairs in the same direction does not, because the second currency is not a detail of the quote — it is half the position.
Why it matters
Because each trade involves two currencies, positions across different pairs can be far more correlated than they look — several trades can be the same dollar bet in disguise.
Common mistakes
- Holding several pairs that share a currency and treating them as independent risks.
- Forgetting that news on the quote currency moves the pair just as much as news on the base.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
The first currency in a pair — the one being bought or sold.
The second currency in a pair — the one the price is expressed in.
The most heavily traded currency pairs, all involving the US dollar.
The hidden risk of holding several positions that tend to move together.
The standard smallest price increment in a currency pair — usually 0.0001.