In the foreign exchange market, currency pairs are the main trading instruments. The pair is an instrument, where one currency is denominated in another currency. The most popular currency pairs are called major pairs and include EURUSD, USDJPY, GBPUSD, and USDCHF. Major pairs are traded widely and have the highest liquidity. To put it into the perspective of scale, trillions of dollars are traded on FX markets daily. So, EUR, USD, JPY (the Japanese yen), GBP(Great Britain Pound), and CHF(swiss franc) are the main currencies in major currency pairs. Together with major pairs, there are minors and exotics. Minor pairs are less popular and exotic pairs are rare. Exotic pairs tend to have lower trading volumes and thereby lower liquidity.

The first currency in the currency pair is a base currency and the currency in which the base currency is denominated is called the quote currency. In EURUSD, the EUR is a base currency and USD is the quote currency. Similarly, in the pair USDJPY, USD is the base currency and the JPY is the quoted currency. It is fairly simple to find the quote currency, traders just need to look at the second currency in the currency pair. 

Now, this is probably the most important concept. Many beginners have a hard time understanding and memorizing this nuance of currency pairs, making it difficult for them to understand Forex trading. 

What does EURUSD mean?

EURUSD currency pair shows how much of the quoted currency units you have to pay in order to buy 1 unit of the base currency. This price is called the exchange rate. So, if the exchange rate of the EURUSD is 1.1221, it means for 1 unit of EUR traders have to pay $1.1221. 

Understanding the exchange rate

When the price of EURUSD changes from 1.1221 to 1.1220, it means that EUR is now cheaper and requires fewer dollars to buy. In this case, the EUR depreciated against the dollar, or the dollar appreciated against the EUR. So, if the EURUSD exchange rate starts to decline, the trend may be moving downwards, but actually, USD or the quoted currency will gain value. This is a crucial concept behind Forex exchange rates which may confuse many beginners. Without grasping this fundamental, it will be much more difficult to interpret macroeconomic events' impact on the exchange rate. 

In Forex trading, currencies are denominated against each other, composing currency pairs.

The first currency in a currency pair is called the base currency, and the second currency is the quoted currency. 

In EURUSD, the EUR is the base currency, and the USD is the quoted currency.

Currency exchange rate represents the value of 1 unit of base currency in quoted currency. EURUSD exchanger rate at 1.1010 means: in order to buy 1 EUR investors have to pay 1.1010 US dollars. 

When EURUSD moves downwards, the USD is stronger or appreciates. 

When the exchange rate of the currency pair declines or loses value, it means the quoted currency is gaining strength and vice versa.