How forex pairs are quoted
A forex pair is written as base/quote. EUR/USD: EUR is the base; USD is the quote. The price reflects how many units of the quote currency one unit of the base buys. EUR/USD at 1.0850 means one euro buys 1.0850 US dollars.
The quote is two-sided: bid and ask. Bid is the lower number — the price at which the trader can sell the base. Ask is the higher number — the price at which the trader can buy it. A long position opens at the ask and closes at the bid; a short position opens at the bid and closes at the ask. Either way the trader crosses the bid-ask gap once: the spread is the round-trip cost of the position, not a separate entry fee. That holds exactly when the spread is the same at entry and exit; a wider spread at exit adds half the difference. A new position opens at a loss equal to the spread and clears it only as price moves far enough in the trader's favour.
On most major pairs the Pip sits at the fourth decimal place; on JPY pairs it sits at the second. Some platforms also display fractional pips (the fifth or third decimal — pipettes), used in high-precision pricing.
Major, minor, and exotic pairs
By market convention, the major pairs are the US dollar paired with the euro, sterling, the yen, the Swiss franc, the Canadian dollar, the Australian dollar or the New Zealand dollar: EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, NZD/USD. EUR/USD and USD/JPY are the two most-traded pairs in the world (BIS Triennial Central Bank Survey), and the majors typically carry the tightest spreads retail brokers quote.
Cross pairs are pairs without the US dollar; those that combine two non-USD majors, such as EUR/GBP, EUR/JPY, GBP/JPY and AUD/JPY, are usually called minors. As an illustrative assumption, not a market figure, spreads on crosses run 1.5–3 times those on the underlying USD pairs, in pips; each broker sets its own. Crosses also trade directly between banks; trades with no US dollar leg make up about a tenth of global turnover (BIS Triennial Central Bank Survey), and arbitrage keeps a cross's price in line with the cross of the two USD quotes (e.g. EUR/JPY ≈ EUR/USD × USD/JPY).
Exotic pairs combine a major with a less widely traded currency, often from an emerging market: USD/MXN, USD/ZAR, USD/TRY, USD/BRL. For pairs like these, spreads are wider than on the majors, even as a share of the price, reflecting thinner interbank liquidity. Brokers generally set lower maximum leverage on exotic pairs than on majors — a buffer against the sharper price swings these currencies can produce.
Long and short — the bilateral structure
Long a pair means buying the base and selling the quote simultaneously. A long EUR/USD position is long EUR and short USD. The position profits when the base strengthens relative to the quote.
Short a pair is the inverse: short the base, long the quote, profitable when the base weakens relative to the quote. There is no separate borrowing step as in equity markets, where a short seller must first borrow the shares. A retail forex position, long or short, holds one currency against another, and when it is held past the daily rollover on an account that charges swap, the interest difference between the two currencies, net of the broker's markup, is debited or credited as swap. The bilateral nature of currency pairs means selling EUR/USD is mechanically the same as buying USD/EUR.
Both directions are equally accessible. The forex market as a whole has no structural long bias of the kind equity indices show, where prices tend to drift upward over decades: every currency position is long one currency and short another, so one side's strength is the other side's weakness. Individual pairs can still trend for years. A currency with persistently higher inflation tends to depreciate against a lower-inflation one, one reason USD/TRY and USD/ZAR trade far above their levels of two decades ago.
A forex trade end-to-end
A USD-account trader on a commission-free account opens a long EUR/USD position of 1 standard Lot size with the mid-price (the midpoint between bid and ask) at 1.0850 and closes it with the mid-price at 1.0900, a 50-pip move:
Position size = 100,000 EUR. Mid-price at entry 1.0850, at exit 1.0900 — a 50-pip move in the trader's favour. Pip value = $10 per pip on a USD-quoted pair, 1 standard lot. Gross profit on the move = 50 × $10 = $500, before costs.
Costs on the round trip: one full spread in total, not one at entry and another at exit. The trader buys at the ask, half a spread above the mid, and sells at the bid, half a spread below it; with a 1.2-pip spread at both ends (the figure varies by broker, account type and session), the two halves add up to 1.2 pips. Round-trip spread cost = 1.2 pips × $10 = $12. Net profit before any swap = $500 − $12 = $488.
If the position is held past the daily rollover (typically 17:00 New York), swap applies. At a long EUR/USD swap of approximately −$7 per night (at an illustrative 1.0850, with the ECB deposit rate at 2.50%, the upper limit of the US federal funds target range at 4.00% and an illustrative total broker markup of about 0.8% a year; the figure varies by broker and moves with both central banks' rates), holding across two ordinary rollovers deducts another $14; if one of them is the Wednesday rollover, which on spot FX applies three days of swap unless a bank holiday moves the settlement dates, the charge is $28.
Final P&L = $488 − $14 = $474 if held across two ordinary rollovers ($460 if one is Wednesday's), $488 if closed before the first rollover. The same trade in pips ignores the cost layer entirely. A 50-pip movement in the position's favour is a gross gain of $500 on 1 standard lot; the costs determine whether the account changes by what the pip count suggests or by something materially less, and on a long enough hold the swap alone can turn it into a loss.
What moves currency pairs
Interest rate differentials between the two currencies' central banks, and expectations of how they will change, are among the main drivers of major-pair prices. When the Fed signals tighter policy and the ECB signals easier policy, USD tends to strengthen against EUR, and EUR/USD tends to fall.
Economic data releases (Non-Farm Payrolls, CPI, GDP) and central bank meeting minutes move prices mainly by shifting those rate expectations. Geopolitical events and shifts in risk sentiment, which move USD/JPY and AUD/USD particularly, act partly through rate expectations and partly through safe-haven and risk-appetite flows alongside them.
Scheduled economic events are listed in an economic calendar; geopolitical events and unscheduled central-bank announcements are not.
What forex is not
Forex is not an investment in the conventional sense. There is no underlying business that compounds value over time. EUR/USD does not pay dividends or accrue earnings; it reflects the relative price of two currencies. Apart from price movement, the only flow a held position generates is the daily swap on accounts that charge it, or the fee that replaces it on swap-free accounts. The swap is the interest-rate differential between the two currencies, net of the broker's markup, debited or credited at each rollover. Swap-free accounts carry no swap; the broker's terms set any fee that replaces it, such as an administration fee after a set number of nights.
Forex is not a casino. The price reflects supply and demand from a vast interbank market; movements have economic causes. But the per-trade outcome is uncertain, and the cost layer (spread, commission where the account charges it, slippage when it goes against the order and, when it is a debit, swap) creates a structural drag that every trade must overcome before any skill shows in the result.
Forex is a market for transferring exposure between currencies. Almost all of its turnover is between financial institutions, whether dealers trading with each other or with other financial institutions, and non-financial customers account for a small share (BIS Triennial Central Bank Survey). Retail forex trading is a peripheral use of the same market infrastructure: retail traders take liquidity, paying the spread to the dealers and brokers who quote the price, in exchange for the chance to profit on directional movement — at a structural cost they often underestimate.