What it is:
Major pairs are the four pairs of currencies that are most commonly traded in the foreign exchange markets.
How it works (Example):
The major pairs are Euro/U.S. Dollar (EUR/USD); U.S. Dollar/Japanese Yen (USD/JPY); U.S. Dollar/Swiss franc (USD/CHF); British Pound/U.S. Dollar (GBP/USD). There are about a dozen popular pairs that constitute the majority of forex trading, but these four are the biggest of the big.
Buying and selling currency always involves two currencies: the currency you’re paying with (that is, the currency you’re selling) and the currency you’re buying. Thus, currencies are traded in pairs. The base currency is the currency you’re selling, and the quote currency is the currency you’re buying.
For example, if you purchase a JPY/USD pair that is quoted at 1.40, then for every 1.40 U.S. dollars you sell, you get 1 Japanese yen. If you were selling the pair, you’d get 1.40 U.S. dollars for every Japanese yen you sold.
In the foreign exchange markets, prices go out four decimal places (like this: $1.4000). A change in the fourth decimal place—1/100th of 1% change in price—is called a pip. It actually stands for "percentage in point." (The exception, of course, is for USD/JPY pairs. They usually only go out two decimal points.)
Why it Matters:
The major pairs drive aof the activity in the markets because they are so popular.