Understanding Currency Pairs: Major, Minor, and Exotic Pairs
In the foreign exchange market, currencies are always traded in pairs. Making sense of forex requires an understanding of currency pairings, and making wise trading decisions requires an understanding of the primary distinctions between major, minor, and exotic forex pairs. So, let’s understand forex currency pairs in detail.
What is a Currency Pair?
A forex currency pair is a combination of two currencies, with the base currency and the quote currency being the first and second currencies, respectively. The price determines how much of the quote currency is required to buy one unit of the base currency.
For example, the euro is the base currency in the EUR/USD pair, which indicates how many US dollars are required to purchase one EUR.
Types of Forex Currency Pairs
1. Major Forex Pairs (Most Traded)
Major forex pairs dominate the currency exchange market. Due to their high liquidity, they are the most traded currency pairs. These pairs include the US Dollar (USD) paired with other strong global currencies.
The Major Forex Pairs Include:
- EUR/USD (Euro/US Dollar)
- USD/JPY (US Dollar/Japanese Yen)
- GBP/USD (British Pound/US Dollar)
- USD/CHF (US Dollar/Swiss Franc)
- AUD/USD (Australian Dollar/US Dollar)
- NZD/USD (New Zealand Dollar/US Dollar)
- USD/CAD (US Dollar/Canadian Dollar)
Why Trade Major Currency Pairs?
- High liquidity (easy entry/exit)
- Lower spreads (cost-effective)
- More predictable price movements
- Representative of the global economyy
2. Minor Forex Pairs (Cross-Currency Pairs)
Minor currency pairs, also known as “crosses,” exclude USD but involve other major currency pairs. These pairs are comprised of two primary currencies, creating an interesting dynamic based on the involvement of both economies.
The Minor Forex Pairs Include:
- EUR/GBP (Euro/British Pound)
- EUR/CHF (Euro/Swiss Franc)
- AUD/JPY (Australian Dollar/Japanese Yen)
- GBP/JPY (British Pound/Japanese Yen)
Why Trade Minor Currency Pairs?
- Prospective when USD is weak
- Best for diversifying trading portfolio
3. Exotic Forex Pairs (Emerging Market Currencies)
Exotic pairs consist of one major currency + one from an emerging economy. These currencies are mostly from a growing economy and are known for their unpredictable trading styles. These offer lower liquidity, wider spreads, and higher trading costs.
Popular Exotic Forex Pairs Include:
- USD/TRY (US Dollar/Turkish Lira)
- EUR/TRY (Euro/Turkish Lira)
- USD/ZAR (US Dollar/South African Rand)
- EUR/THB (Euro/Thai Baht)
Why Trade Exotic Currency Pairs ?
- High volatility (potential for big moves)
- Unique geopolitical influences
Key Tips for Trading Forex Currency Pairs
- As a beginner trader, start with major pairs—they are steady compared to other pairs.
- Monitor Economic Events (GDP, BoE, interest rates)—News impacts currency values (e.g., interest rates, GDP).
- Diversify Your Trading Portfolio Strategically—Combine majors, minors, and exotics based on market conditions.
A clear understanding of the major, minor, and exotic forex pairs helps traders to leverage market opportunities as per their risk appetite and investment goals. Major currency pairs are tagged as the safest pairs, whereas minors and exotics offer exclusive opportunities with a cautious approach.
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