A currency pair quotes the price of one currency in terms of another. The first currency is the base, the second is the quote; the price shows how many units of the quote currency one unit of the base is worth. EUR/USD at 1.0850 means one euro is priced at 1.0850 US dollars.
How to read the quote
In EUR/USD the euro is the base and the US dollar is the quote. At 1.0850 you pay 1.0850 dollars for one euro. If the quote rises to 1.0900, the base has become more expensive in terms of the quote — the euro has strengthened, the dollar has weakened. If it falls to 1.0800, the opposite has happened. The direction always refers to the base currency, which is why "buying EUR/USD" means being long the euro and short the dollar at the same time.
Volume is expressed in units of the base currency: one standard lot of EUR/USD is 100,000 euros, one mini lot is 10,000. That is also why the value of a price move is denominated in the quote currency, and has to be converted if the account is held in a third currency.
Majors, minors and exotics
Pairs are grouped by what they contain. Majors pair the US dollar with the euro, yen, pound, Swiss franc, Canadian dollar, Australian dollar or New Zealand dollar. Minors, also called crosses, are combinations of those same currencies without the dollar — EUR/GBP, EUR/JPY, GBP/JPY. Exotics put a major currency against the currency of a smaller or emerging economy, such as USD/TRY or USD/ZAR; they typically carry wider spreads and thinner liquidity. The grouping is not only descriptive: under the ESMA retail limits, leverage is capped at 30:1 on major currency pairs and 20:1 on non-major pairs, major indices and gold, with 10:1 on other commodities and non-major indices, 5:1 on individual equities and 2:1 on cryptocurrencies. All of this trading happens bilaterally rather than on an exchange — see OTC Market.
Five decimal places and where the fourth one sits
Most pairs are quoted to five decimal places, for example 1.08505. The fourth decimal is the conventional unit of price change; the fifth is a fractional unit, shown as a smaller digit in most platforms and often called a point or pipette. Pairs quoted against the Japanese yen use three decimals instead, with the same unit sitting at the second place — USD/JPY 152.375.
The reason a quote has that many digits is the size of the position it is applied to: on 100,000 units, a change in the fourth decimal is a measurable amount of money. How that amount is calculated for each pair and account currency is covered in the lesson What is a Pip.
Work out the value of one pip for a specific pair, lot size and account currency with the pip calculator.
