Nixse
0

Major and Minor Pairs – Introduction to Currency Pairs

Curious about major and minor currency pairs in Forex trading? Trading in the Forex market involves interacting with reliable Forex brokers and handling a variety of currency pairs. Successful traders are adept at understanding the nuances of each pair and making informed decisions on which ones to trade.

For those considering venturing into the world of foreign exchange market, it’s essential to grasp the concept of “currency” and comprehend the roles of quote and base currencies in currency pairs. Let’s dive into a basic explanation. 

What is a currency pair?

A currency pair is essentially a quotation that compares the value of two interrelated but distinct currencies. It represents how much of one currency is needed to purchase a unit of another currency. The base currency is the first currency listed in a currency pair, while the quote currency is the second listed.

In Forex trading, a currency pair is the exchange rate representation for two different currencies. The most widely traded pair globally is EUR/USD (Euro/US Dollar).

When a currency pair is traded, the base currency is bought while the quote currency is sold.

 Why do traders trade different currencies?

Forex traders engage in trading various currencies to capitalize on their potential for profit. This process involves comparing the value of a country’s currency against another’s, typically conducted in the Forex market, which operates continuously for 5.5 days a week in most countries.

Understanding major and minor pairs is vital to compare their values against each other. This knowledge is crucial for determining how much of the quoted currency is required to purchase a unit of the base currency.

Each currency is represented by a three-letter symbol, such as CAD for the Canadian Dollar, EUR for the Euro, USD for the US Dollar, JPY for the Japanese Yen, etc.

Understanding currency pairs

In Forex trading pairs, the base currency is the first currency listed, followed by a forward slash. For example, in the EUR/USD pair, EUR is the base currency.

If the EUR/USD pair is valued at 1.25, it means 1 Euro can be exchanged for 1.25 US Dollars.

In the Forex markets, there are three types of currency pairs: major, minor, and exotic. This discussion will briefly cover major currency pairs and highlight how they differ from minor currency pairs.

 

Currency trading ,closeup and shallow DOF,for forex

Major Currency Pairs

Major currency pairs, as the name suggests, are highly sought after and known for their volatility. These pairs, which are among the most volatile in the trading market, reflect the currencies of the world’s foremost economies. As a result, they experience significant trading volumes.

There are seven primary and most frequently traded major currency pairs:

EUR/USD: Euro and US Dollar

USD/JPY: US Dollar and Japanese Yen

GBP/USD: British Pound and US Dollar

USD/CHF: US Dollar and Swiss Franc

USD/CAD: US Dollar and Canadian Dollar

AUD/USD: Australian Dollar and US Dollar

NZD/USD: New Zealand Dollar and US Dollar

One common feature of all major Forex pairs is their inclusion of the USD. In each of these pairs, the US Dollar is a constant presence.

This is primarily because the USD serves as the principal reserve currency worldwide. Additionally, the US Dollar plays a crucial role in the international economy. 

Minor Currency Pairs

In contrast to major pairs, minor currency pairs, also known as crosses, do not include the US dollar. These pairs involve currencies from various countries paired with each other, excluding the USD.

Some common examples of minor currency pairs are:

  • EUR/GBP: Euro and British Pound
  • EUR/AUD: Euro and Australian Dollar
  • GBP/JPY: British Pound and Japanese Yen
  • CHF/JPY: Swiss Franc and Japanese Yen
  • NZD/JPY: New Zealand Dollar and Japanese Yen
  • GBP/CAD: British Pound and Canadian Dollar
  • EUR/CHF: Euro and Swiss Franc

Among these minor pairs, the most frequently traded involve the Euro, Yen, or Pound Sterling. For traders interested in exploring these pairs, FXTM offers a cent account.

To understand more about how this platform operates and its offerings, it’s recommended to read a detailed review on FXTM.

Wooden economy and currency unit on a craft background

Benefits of trading major and minor currency pairs

Of course, the main question of many traders worldwide is what are all the benefits of trading major and minor currency pairs. Primarily, major currency pairs are popular because they are highly liquid and volatile. With additional volume, spreads in the middle of the bid/ask price could narrow.

Major pairs are known for their high volume. Thus, these currencies have less spread in comparison to exotic pairs. For that reason, they allure the majority of traders to them, keeping their volume at the highest possible level.

On the other hand, minor currency pairs are known to be the second most traded pairs in the Foreign exchange market. These pairs are also called “cross currency pairs,” i.e., “crosses.”

They tend to be less liquid than major currency pairs. Because of that, Forex traders should enable more Forex trades with these types of currencies to reduce trading costs.

Conclusion

In summary, distinguishing between major and minor currency pairs primarily hinges on the inclusion of the US Dollar. As highlighted earlier, the USD is the most widely traded currency globally, and rightly so, as the US is the leading economy globally. 

However, selecting which currency pairs to trade involves more than just recognizing their categorization. Understanding their distinctive impacts on market dynamics is crucial. Gaining this knowledge is a vital initial step towards becoming a highly successful Forex trader.



You might also like
Leave A Reply

Your email address will not be published.