Difference Between Major, Minor and Exotic Currency Pairs

Posted by LeoPrime on Nov 1, 2018 7:39:38 AM

In forex trading and when you are doing forex analysis, you will be dealing with currency pairs a lot. Before we get into the details, let’s see an explanation of what is a currency pair.

As quoted in Investopedia: “a currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other, where the first listed currency is called the base currency, and the second currency is called the quote currency.”

So basically, that means that we are dealing with two currencies at a time when trading. For example, when you’re selling Pound Sterling, you need to know what you’re selling it for (and what currency).

For example, if you’re selling Pound Sterling and getting the US Dollar in return. In that case, you’re trading the GBP/USD currency pair.

Selecting the right currency pair to trade depends on a number of factors, including your experience as a forex trader. The vast majority of traders tend to stick to the major or minor ones, and this is certainly true if you are new to forex trading. It is more challenging to work with exotic pairs because they’re far less liquid and have higher spreads. They (exotic pairs) can also be riskier, but with high risks come high rewards, and they can pay off more significantly.

The three currency pairs are: Major Currency Pairs, Minor Currency Pairs, and Exotic Currency Pairs.

Here is a breakdown of the three currency pairs:

Major Currency Pairs

These usually contain currency pairs that are most frequently used, have the lowest spreads, and are the most popular globally. The advantage of trading with major currency pairs is that they can be traded virtually because they have massive liquidity. Every major currency pair has the US Dollar on one side because the Dollar is the world’s leading reserve currency, and it’s involved in about 88% of currency trades.

Major currency 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)

USD/CAD (US Dollar/Canadian Dollar)

AUD/USD (Australian Dollar/US Dollar)

NZD/USD (New Zealand Dollar/US Dollar)

Minor Currency Pairs

This is whenever a currency pair doesn’t include the US Dollar. The most widely traded minor pairs are the Euro, Yen, or the British Pound.

Here are some examples of some of the top minor currency pairs:

EUR/GBP (Euro/British Pound)

EUR/AUD (Euro/Australian Dollar)

GBP/JPY (British Pound/Japanese Yen)

CHF/JPY (Swiss Franc/Japanese Yen)

NZD/JPY (New Zealand Dollar/Japanese Yen)

GBP/CAD (British Pound/Canadian Dollar)

Exotic Currency Pairs

The term ‘exotic currency pair’ sounds exotic in itself. It includes a major currency and the currency of an emerging economy, such as Turkey, Brazil, or Mexico. There aren’t many exotic pairs and at the same time they are not exactly rare either. But this means that the spreads can be considerably high.

Here are some examples of some of the top minor currency pairs:

EUR/TRY (Euro/Turkish Lira)

USD/HKD (US Dollar/Hong Kong Dollar)

JPY/NOK (Japanese Yen/Norwegian Krone)

NZD/SGD (New Zealand Dollar/Singapore Dollar)

GBP/ZAR (British Pound/South African Rand)

AUD/MXN (Australian Dollar/Mexican Peso)

You can  read more about currency pairs here and how they operate in our daily forex analysis carried out by our forex experts.

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