What are currency pairs, and how can they be used in forex trading?

Currency pairs are two currencies together in a ‘pair’ to be traded in the forex market. In this market, traders can speculate on the movements of one currency relative to another and thus make profits or losses depending on how accurately they predict future prices. Forex trading is a global market where currencies from all over the world are exchanged to generate profit. The UK’s most commonly traded currency pairings include GBP/USD, EUR/USD and USD/JPY. Each of these pairs consists of two currencies paired together for trading purposes. These currency pairs provide several opportunities for traders looking to capitalise on changes in exchange rates between countries.

How to use currency pairs in forex trading

A trader must understand how these pairs work and the available strategies to effectively use currency pairs in forex trading. Traders can employ numerous methods and strategies when using currency pairs to profit from forex trading.

Carry trade strategy

The carry trade strategy is one of the most commonly used forex trading strategies. It involves selling a low-interest-rate currency and buying another with a higher interest rate. The idea is to ‘carry’ the profits from the lower-yielding currency into the higher-yielding currency. This forex trading strategy can be incredibly profitable in volatile markets. Additionally, traders can often buy and sell a currency pair at tight spreads to maximise profits due to the forex market’s massive liquidity.


Hedging is a forex trading strategy used to reduce the risk associated with forex trading by buying two currency pairs that are negatively correlated. It allows traders to protect their investments from significant losses due to sudden swings in exchange rates. For example, if a trader is bullish on GBP/USD, they can buy USD/JPY to hedge their position. This forex trading strategy helps reduce the overall risk associated with forex trading while allowing traders to profit in volatile markets.

Technical analysis

Technical analysis is another forex trading strategy that involves analysing past price movements to predict future trends. By looking at the forex pairs’ historical prices, traders can identify support and resistance levels, trend lines, and other indicators to determine if a currency pair is likely to continue its current trend or reverse direction shortly. Technical analysis helps forex traders make informed decisions and capitalise on forex trading opportunities.


Scalping is a forex trading strategy that takes advantage of the market’s small price movements. This technique involves buying and selling currencies within a short period, often within seconds or minutes, to profit from small but frequent price movements. This forex trading strategy requires a high level of discipline and quick decision-making, as traders must be able to quickly identify opportunities in the forex market and act on them.

Day trading

Day trading is another forex trading strategy used by forex traders. This forex trading strategy involves buying and selling currency pairs within a day to profit from small, short-term price movements. Day traders use technical analysis, news events, and economic data to identify opportunities in the forex market. By quickly taking advantage of these opportunities, forex traders can make significant profits in just one day.

Advantages of trading currency pairs

Currency pairs provide forex traders with several advantages. By understanding how to use currency pairs in forex trading, traders can capitalise on the forex market’s high liquidity and leverage to maximise their profits.

High liquidity

The forex market has the highest liquidity compared to any other financial market. With forex pairs, traders can quickly enter and exit trades as needed without worrying about slippage or lack of buyers and sellers. This high liquidity also helps forex traders take advantage of small but significant price movements in the forex market.

Low spreads

In forex trading, traders can take advantage of low spreads. It allows forex traders to maximise their chances in the market by buying and selling a currency pair at tight spreads. Additionally, this helps forex traders save money on transaction costs as they don’t have to pay high spreads for their trades.


The forex market offers forex traders the opportunity to use leverage. It allows forex traders to increase their potential profits by increasing their investment capital. Forex traders can use leverage to buy more currency pairs or hedge their positions to reduce risk.