Major Currency Pairs: An Introduction

Major Currency Pairs

Table of Contents

If you have heard about the foreign exchange or currency market, probably you have also heard the term “currency pairs.” There are various categories of forex currency pairs, including majors, minors, and exotic. In this article, we will discuss major currency pairs in detail and how you can trade them.

Transactions in the forex market entail an exchange of currencies, as the name indicates. Therefore currencies are valued relative to other currencies and transacted at a set rate known as an exchange rate.

As a result, a currency is usually stated in relation to another currency that it may be swapped for. As a result, all currencies traded in the forex market are traded in pairs, which are referred to as currency pairings by forex traders.

The sections include some of the fundamental principles surrounding currency pairings, such as their notation convention and the relevance of the order in which the currencies occur. Below are listings of the main, minor, and exotic currency pairings and crosses and information on market liquidity and common nomenclature.

What are currency pairs?

A slash frequently separates the three-letter currency codes for each currency in forex currency pairings. EUR/USD, for example, is a common forex market symbol for a currency pair consisting of European Union Euros (ISO code EUR) expressed in US Dollar terms (ISO code USD).

The foreign exchange, also known as the forex market, is the largest marketplace in the world, with more than $5 trillion traded on a daily basis. If you want to learn how to trade forex, you need the first grasp how the market works and what a currency pair is.

Trading in the forex market, in simple words, implies profiting from the purchase or short-selling of one or more currency pairs. You estimate the future movement of one currency in respect to another using various technical analysis indicators, fundamental analysis, or both.

A currency pair refers to a pair that includes two currencies traded in the forex market. In the typical market shorthand, each currency pair has a base currency before the slash and a counter currency or quote currency after the slash. So let’s start with the basics. All currencies are labeled with three-letter tags and are specified according to the international standard code, or ISO currency code.

Combining two separate currencies creates a currency pair in which the base currency is the first one, and the quote currency is the second one. The Euro, or EUR, is the pair’s base currency, while the US dollar, or USD, is the pair’s counter currency, quoted against the base currency.

Types of currency pairs 

There are three main types of currency pairs which are

  1. Major currency pairs: These are considered to be the most liquid currency pairs and typically include USD. 
  2. Exotic currency pairs: Exotic currency pairs refer to the currency pairs that include one major currency and one emerging currency. 
  3. Cross-currency pairs: There is no involvement of USD in these types of currency pairs. 
  4. Minor currency pairs: Minor currency pairs are similar to cross currency pairs, but they can include some major currencies like GBP, EUR, or JPY. 

Major currency pairs are the most traded ones and are most popular among traders worldwide. You can trade these pairs via a reliable broker like PrimeFin. The broker is highly regulated and known for providing the best environment to trade in the forex market. 

The most-traded four major currency pairs are EUR/USD, GBP/USD, USD/CHF, and USD/JPY. 

Most volatile forex pairs

The volatility levels of currency pairs vary, and you can choose to trade highly volatile or low-volatility pairs. The volatility represents price changes over time in a currency pair. Lower volatility is indicated by smaller price changes, whereas more significant or more frequent moves imply higher volatility.

The price movement of a currency pair is generally measured in pips. Therefore a pair that moves 100 pips on average over a given period will be more volatile than a currency pair that moves ten pips over the same time period. 

Keep in mind that a currency pair’s volatility might fluctuate over time as the underlying circumstances change. However, the pairs listed below are among the most and least volatile.

Most volatile currency pairs

  • GBP/AUD
  • USD/TRY
  • AUD/JPY
  • AUD/USD
  • CAD/JPY

Least volatile currency pairs

  • EUR/GBP
  • EUR/USD
  • EUR/CHF
  • USD/CHF

Because of low liquidity and unpredictable economic conditions in developing nations, exotic currency pairings are regarded as more volatile. As a result, exotic currency pairings have substantially larger price swings on average than cross pairs or majors.

How to trade currency pairs

On your trading platform, you may observe that for each currency pair, two values are displayed: the bid price and the ask price. A spread is a difference between the two.

The bid and ask prices are displayed from the perspective of a broker. The bid price is the price at which a broker is prepared to purchase a currency pair, whereas the asking price is the price at which the broker is willing to sell it. Because brokers sell you the pair for more than their purchase price, the asking price will always be more significant.

When purchasing a currency pair, the trader pays the asking price and sells it for the bid price. Because some trading platforms identify pricing as a sell and buy, keep in mind that the trader buys at the higher stated price and sells at the lower. The bid and ask or sell and buy values for several pairings with GBP as the base currency are represented by a table provided by your broker.

When traders sell the GBP/USD pair, they receive a certain amount in exchange for one GBP, or if they opt to purchase, they will pay a greater price. The spread is the difference between the two, and as you can see, the spread varies based on the currency pair. Smaller spreads are preferred by traders since a deal must cover the spread before it becomes lucrative.

When you open a position in the forex market, you’re looking at the connection between the currencies and whether one is stronger or weaker than the other. Traders can make money in one of two ways:

  • The base currency gains or loses value.
  • The stated currency gains or loses value.

Let’s use the EUR/USD currency pair as an example, assuming that all other factors influencing the rate stay constant. When the EURstrengthens as a base currency, the EUR/USD exchange rate rises. The value of the pair will fall if the EUR weakens. When the US dollar strengthens against the Euro, the EUR/USD exchange rate falls. If the US dollar falls in value, the EUR/USD exchange rate will climb.

Most traded currency pairs

Many factors can influence currency pairs, and each has its own characteristics that attract or repel traders. They can pick a currency pair to trade based on volatility, liquidity, volume, or any other characteristic. As a result, the list of the most popular forex pairings can include currencies with vastly different qualities. The following are some of the most commonly traded pairs:

  • EUR/USD (euro/US dollar)
  • EUR/JPY (Euro/Japanese yen)
  • AUD/USD (Australian dollar/US dollar)
  • GBP/USD (British pound/US dollar)
  • USD/CHF (US dollar/Swiss franc)
  • EUR/GBP (euro/British pound)
  • USD/JPY (US dollar/Japanese yen)
  • EUR/AUD (Euro/Australian dollar)
  • GBP/JPY (British pound/Japanese yen)
  • USD/CAD (US dollar/Canadian dollar)

Best forex pairs to trade

Which forex pairs are best for trading is a difficult question to answer because it depends on your trading goals.

Consider some of the most volatile pairings if you want the chance to make more significant gains (more pips) by taking on greater risk. Conversely, you can trade some of the less volatile currency pairs or currency pairs from the most stable economies if you want more stability. You can also trade major currency pairs, exotic pairs, or crosses as an alternative.

When deciding the currency pair to trade, the spread between the bid and ask prices can also be a factor. You could also have a lot of knowledge about a particular economy and decide to trade currency pairs that contain it. There are numerous currency combinations to choose from, and the decision is based on personal tastes.

However, when choosing a currency pair, keep volume and liquidity in mind to ensure that demand and supply are balanced. Also, remember that with volatile currency pairs, you can make more money because price fluctuations are likely to be considerably bigger.

Trading major currency pairs are thought to have fewer risks than trading other types of pairs. Thus beginner traders should choose a pair with high liquidity and a low amount of volatility until they get more experience with forex trading.

Liquidity in the Major, Minor, and Exotic Currency Pairs 

Participants in the forex market occasionally disagree on whether currency pairings are major, minor, or exotic. Nonetheless, in the vast majority of circumstances, these broad classifications refer to currency pairings that are either highly liquid, somewhat liquid, or rather illiquid.

In addition, the term liquidity in the context of the currency market refers to the ability of the forex market to handle a buy or sale transaction without creating a significant shift in the exchange rate for the currency pair in question.

In fact, forex market liquidity is determined by the number of market makers available to offer quotations for a given currency pair, as well as their willingness to absorb big transactions without significantly affecting the exchange rate.

Most forex traders regard the EUR/USD, GBP/USD, AUD/USD, USD/CHF, USD/NZD, and other currency pairings to be major currency pairs since the forex market for major currencies such as the EUR, GBP, AUD, CHF, NZD, and others quoted against the USD is particularly liquid.

Minor currency pairs, which comprise so-called cross-currency exchange rates that do not involve the US dollar, make up the next lowest rung of liquidity. For example, some traders classify the NZD/USD as a major FX pair, but others classify it as a minor FX pair since it remains popular among traders and has very liquid markets as a result.

Traders of cross-currency pairings often have less liquid trading conditions and more excellent spreads than traders of major currency pairs. Therefore, the more liquid markets of their associated currencies quoted against the US Dollar can be used to calculate cross exchange rates.

The EUR/JPY, EUR/GBP, and GBP/JPY currency pairs are all highly liquid cross currency pairs that do not include the US dollar. The AUD/JPY and GBP/NZD currency pairs, for example, are less liquid cross currency pairs.

Bottom Line

After checking to verify if your present broker or dealer trades in the new currency pair, the next step is to conduct some basic research on the two nations that supply the currencies that make up the new interest pair. 

You can trade major currency pairs with a well-regulated and reputed forex broker PrimeFin and lock your trading opportunities to make huge profits.

Because currencies are similar to the stock market of the countries or regions that issue them, learning about the issuer’s politics and economics, as well as determining what items it purchases and sells, would likely be beneficial.

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