My Easy Guide to Understanding Currency Pairs

By Sean Hyman

All currency pairs are listed exactly the same way. For example, if you want to trade the U.S. dollar vs. the euro, you always use the EUR/USD symbol, whether you’re betting on the dollar or the euro.

There are a couple of important factors that helped to determine the order for each currency pair.

Let’s start with the pound.

It’s no secret that London is the FX center of the currency universe. After all, the British pound is still nicknamed the “cable” because currency trading between New York and London was once done via transatlantic undersea cable. In other words, currency trading goes WAY back in London.

Today, the London market facilitates more currency trades than anyone. So it only made sense to put them at the top of the list. That’s why the British pound is listed first in the GBP/USD pair.

Also, the strong British pound spent years with a significantly higher value than most the majors. Its higher value helped confirm its placement as the currency listed first in pairs.

The Pound Dethroned by the Euro! The Queen Couldn’t Have Been Happy

Simple enough right? Well, then the euro came along.

The euro officially started trading on January 4, 1999. But today, if you want to trade the British pound against the euro, you have to trade the EUR/GBP pair. So why is it listed as EUR/GBP rather than GBP/EUR?

Actually, at first, both Reuters and EBS (the two main quoting services) quoted the euro/pound pair both ways when the euro first started trading. At the time, the London traders hated that there was even a question whether the pound should be first.

However, Reuters and EBS decided that they would allow the market to decide which would last. It wasn’t long before the market determined that EUR/GBP was the clear winner. So at that time, the “GBP/EUR” ceased to exist. It’s been the EUR/GBP pair ever since.

How to Easily Tell Which Currency Is Which

It was this event that bumped the euro ahead of the pound as “king of the currencies.” So this became the order of hierarchy from that point on:

Euro (EUR)
British pound (GBP)
Australian dollar (AUD)
New Zealand dollar (NZD)
United States dollar (USD)
Canadian dollar (CAD)
Swiss franc (CHF)
Japanese yen (JPY)

Once this order was established, you could easily tell which currency is which. The higher currency on this list is always listed first. If you’re trading a currency that’s lower on the list, it’s always listed second. For example, the Aussie dollar is higher on the list than the U.S. dollar. So if you’re pairing them together, the symbol is AUD/USD, according to the list. Mystery solved! 

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