TYPES OF CURRENCY PAIRSWhen trading Forex, it is essential to know about the different types of currency pairs, as some pairs are much riskier to trade than others, especially for those with minimal trading experience.
Major Currency Pairs
Before we discuss major currency pairs, we should first list the major currencies individually. The eight major currencies are:
US dollar (USD)
Euro (EUR)
British pound (GBP)
Japanese yen (JPY)
Swiss franc (CHF)
Canadian dollar (CAD)
Australian dollar (AUD)
New Zealand dollar (NZD)
As listed above, there are eight major currencies but there are only seven major pairs because a major pair includes the U.S. dollar. Major pairs are the most traded currency pairs on the forex market. They account for the highest average trade volume and have the most liquid markets, as well as the lowest risks and spreads offered by brokers. The seven major currency
pairs are:
EUR/USD – Euro / US dollar
GBP/USD – British Pound / US dollar
USD/JPY – US dollar / Japanese yen
AUD/USD – Australian dollar / US dollar
USD/CHF – US dollar / Swiss franc
USD/CAD – US dollar / Canadian dollar
NZD/USD – New Zealand dollar / US dollar
Note that AUD/USD and USD/CAD are sometimes also referred to as commodity currencies.
Minor Currency Pairs
Minor currency pairs (also known as cross pairs or crosses) always include two major currencies but not the U.S. dollar. Crosses are not as popular and as highly traded as the major pairs. This means they can be riskier than a major pair and will attract wider spreads from brokers. Their liquidity can also be low at times, presenting a challenge for inexperienced traders in a thin volume environment. Here are a few examples of minor currency pairs:
EUR/GBP – Euro / British pound
EUR/JPY – Euro / Japanese yen
GBP/JPY – British pound / Japanese yen
AUD/NZD – Australian dollar / New Zealand dollar
NZD/JPY – New Zealand dollar / Japanese yen
GBP/CAD – British pound / Canadian dollar
Exotic Currency Pairs
Exotic currency pairs consist of a major currency paired with a currency from a developing and emerging nations as well as certain developed nations. These currency pairs trade in a far less liquid market compared to the majors and minors as they are traded less frequently. This causes their spreads to be much higher than those of the major and minor pairs. Here are a few examples of exotic currency pairs:
EUR/TRY – Euro / Turkish lira
USD/ZAR – US dollar / South African rand
AUD/MXN – Australian dollar / Mexican peso
USD/HKD – US dollar / Hong Kong dollar
NZD/THB – New Zealand dollar / Thai baht
CAD/NGN – Canadian dollar / Nigerian naira
Risks and Spreads
Major currency pairs have the most liquidity and as a result, attract lower spreads, whilst minor and exotic pairs are much riskier and attract wider spreads.
Liquidity & Volatility
Due to high liquidity in the major currency pairs market, they are consistent and predictable, whilst minor and exotic pairs can be volatile and extremely unpredictable at times.
Please also see images below for visual examples of the difference in price behaviour of the different pair types.
MAJOR PAIR & CROSS PAIR
MAJOR PAIR & EXOTIC PAIR
CROSS PAIR & EXOTIC PAIR
Which is the best currency type to trade for new traders? We will be a posting an educational article on this in the future delving into details regarding this question.
Trade safely and responsibly.
BluetonaFX
