The Global Currency Pairs: Majors, Minors, and the Exotics

Learn about commodity, exotic, major, and minor currency pairs as well as the workings of the forex market.

The foreign exchange market (FX or forex) never seems to stop moving, with Reuters reporting $7.5 trillion traded every single day. But what exactly is being bought and sold? In this market, currencies are always exchanged in pairs. Think of it like a dance – the US dollar might be partnered with the Euro, the Japanese Yen, or the South African Rand. Understanding how these pairs work is the key to making sense of forex. This round-the-clock global system links banks, large investors, and ordinary traders through networks of paired currencies. If you want to get involved in forex trading, get familiar with how the major pairs behave and how their values shift. Then use this knowledge to come up with smarter long-term trading plans.What is a Currency Pair?FX pairs are the quotations of two currencies and how their values relate to each other. The first currency in the pair is called the base currency. The second is the quote currency. For example, in the pair AUD USD, the Australian dollar is the base currency, and this tells you how many US dollars (the quote currency) you'd need to exchange to get one AUD.

What Are Cross Currency Pairs?

Cross currency pairs simply mean two currencies quoted together, like EUR/USD. A cross-currency pair excludes the dollar — for example, EUR/JPY. All cross pairs fall under the umbrella of currency pairs overall, but not every pair traded omits the dollar.

How Do Currency Pairs Work?

Currency pairs form the base of the global Forex market, trading non-stop daily. FX pairs show the cost of one currency in terms of another - for example, EUR/USD tells you how many dollars are needed to buy one euro. A bevy of influences, from economic reports and investor feelings to world events, constantly impact pair prices, creating volatility around the clock as traders juggle currencies worldwide. It's a complex dance, but pairs are how it's all transacted.If you want to profit from currency's ups and downs, you have to understand how it all works.

Key Factors Behind Currency Pairing Fluctuations

Currency pairs are constantly moving up and down as different influences shift their values. Things that affect these price changes are:

Economy: A country's overall economic situation, including things like their interest rates, inflation levels, and growth numbers, truly matters when it comes to how strong their money looks against other currencies.
Global events: Major world events, from elections to trade tensions, can cause ripples across the FX market and lead to forex pair fluctuations
Central bank actions: Central banks have monetary policies and other tools within their arsenal, like the setting of interest rates, that are employed to influence economic conditions and thereby impact currency values.

Staying on top of these important issues can help traders boost their odds of making some gains.Major Currency PairingsMajor forex pairs dominate the FX market with their high liquidity and trading volume. These pairs always involve the US dollar paired with another significant currency (e.g., the Canadian dollar) from a major economy. These include the Euro (EUR USD), Japanese Yen (USD JPY), British Pound (GBP USD), Swiss Franc (USD CHF), Australian Dollar (AUD USD), New Zealand Dollar (NZD USD) and Canadian Dollar (USD CAD).Additionally, currencies like the Canadian dollar (CAD) and the Australian dollar (AUD) are often classified as commodity currencies due to their strong correlation with the prices of commodities such as oil and gold.

How to Read FX Pairs

When looking at traded forex pairs, the first currency listed (known as the base currency) is the one being bought or sold. The second (the quote currency) represents the currency used to conduct the transaction. The value of the pair indicates how much of the quoted currency is needed to purchase one unit of the base currency. For example, if the EUR/USD pair is trading at 1.2000, it means that 1 euro can be exchanged for 1.20 US greenback. Understanding how these things connect is huge for traders since small value shifts can make or break you in forex.

How to Interpret FX Pairs

When analyzing currency pairings, watch out for big economic reports or current events that could impact how much one currency in the pair is worth compared to the other. For instance, factors such as interest rate changes, employment reports, and political stability can cause the exchange rate to fluctuate. Traders often use technical and fundamental analysis to predict these movements and make informed decisions when buying or selling currency pairs in the forex market.

How Many FX Pairs Are There?

The number of FX pairings available for trading is huge, encompassing all the possible combinations of the world's different currencies. However, they are broadly categorized into three groups: majors, minors (or crosses), and exotics.Major pairs involve the world's most heavily traded currency pairs, such as EUR/USD, USD/JPY, and GBP/USD. Minor pairs are those that do not include the U S dollar, such as EUR/GBP. Exotic pairs, on the other hand, involve a major currency paired with the currency of an emerging or smaller economy, like USD/PLN (U S dollar/Polish zloty). Each category offers different levels of liquidity, volatility, and market exposure, catering to the diverse strategies and risk appetites of traders across the globe.

Key Characteristics of Major Forex Pairs

A few things really set currency pairs apart:

High liquidity: Big names like the euro-dollar, dollar-yen, and pound-dollar exchange hands in huge amounts daily, meaning many want in and out—which makes slipping trades through quick and simple compared to smaller pairs with less back-and-forth action.
Lower spreads: With so many traders vying for business on big pairs, the small gap between what folks will pay versus get usually stays pretty tiny compared to less competitive options
Wide coverage: They are widely covered by financial media and analysis, ensuring traders have a wealth of information to make informed decisions.
Stability: Since they're tied to huge, steady economies, top pairs usually see smaller price bounces than more unusual options. Still, they clearly reflect wider money moves and allow folks to reliably guess how they'll react to world news or new figures.
Accessibility: Anywhere you trade, big names are straightforward options for rookies or veterans alike.
Representative of the global economy: Top pairs are clearly linked to how well the countries involved are doing money-wise, giving traders a good sense of worldwide cash flows and patterns.

Pros and Cons of Trading Leading Currency Pairs

Dealing in major currency combos means loads of liquidity - trades go through fast without much fuss over price bumps. All that action also keeps the gap between buy and sell prices slim, creating low-cost pals for traders flipping positions often.

Tons of data and debate around these top pairs means traders can make smarter calls. The only thing? Their smaller everyday price shifts might cramp styles looking for fast wins. On the other hand, being so tied to the whole wide world money scene leaves them open to unexpected overseas news or new number drops in a big way - and that can just as easily spark some major market mayhem across the board.Minor Currency PairsMinor currency pairings, sometimes called "crosses," offer an alternative to the U S major currency pairs. They pair with two primary currencies, excluding the US currency. This creates interesting dynamics based on the interplay of those economies. Examples of popular currency pairs include:

EUR/GBP (Euro/British Pound)
EUR/USD (Euro/US Currency)
GBP JPY (British Pound/Japanese Yen)
EUR/CHF (Euro/Swiss Franc)

Key Characteristics of Minor FX Pairs

Here are some key characteristics that define a minor currency pair:

Slightly wider spreads: Minor pairs typically have a bit more room between their buy and sell prices compared to majors due to reduced activity levels.
Moderate liquidity: While liquidity isn't as high as majors, minor pairs still allow trading to flow smoothly in regular markets most of the time.
Diverse trading options: These combinations give traders chances to use different approaches aside from what's driven by United States economics news.
Market depth: Underneath, minor pairs maintain decent participation, providing opportunities to strategize around price variations or calculated opportunities beyond crowded spaces.

Pros and Cons of Trading Minor Currency Pairs

Minor forex pairs can broaden your portfolio and allow reacting to changes in major economies while avoiding direct impact from U.S. dollar moves. These combinations sometimes display unique price behaviors and links, potentially spreading out risk.

The wider differences between sell and buy prices for minors may, though, cut into earnings because of increased costs to trade. Information and commentary on the smaller pairings nations' economies are also somewhat harder to find than for their bigger peers. Finally, while bigger volatility can open doors to outsized wins, it brings bigger potential for losses, too. Minors have pros but also pros worth considering.Exotic FX PairsExotic pairs match a top currency with one from a growing or less traded country. These usually include currencies from developing markets and are known for their unpredictable trading styles.Examples of popular currency pairs that are exotic include:

EUR/THB (EUR/Thai Baht)
USD/TRY (U.S. Dollar/Turkish Lira)
EUR/TRY (Euro/Turkish Lira)
USD/SGD (U.S. Dollar/Singapore Dollar)

Key Characteristics of Exotic FX Pairs

Some of their key characteristics include:

Lower liquidity: Exotic pairs see less regular trading than heavyweights, so locating instant buyers or sellers could require more patience.
Wider spreads: Bid-ask spreads also broaden out more, increasing costs
High volatility: These pairs may react sharply to domestic political or economic changes in up-and-coming markets.

Venturing into less familiar areas involves unique variables to carefully weigh both risk-wise and opportunity-wise.

Pros and Cons of Trading Exotic FX Pairs

Exotic pairs offer big rewards but they come with more risk. High returns are possible, but low liquidity, wide spreads, and high volatility make trading more of a challenge.What to Consider When Trading FX PairsCurrency trading can be confusing, but understanding a few core principles can make a big difference to your success. Whether you're interested in major, minor, or exotic pairs, keep these things in mind:

1. Know Your FX Pairs

Each FX pair has its own personality. Major pairs are influenced by large economies, whereas minor and exotic pairs may be more sensitive to events in their own countries. Research what's happening behind the currencies you're trading so you understand what's normal behavior and what triggers volatility.

2. Mind the Gap: The Bid-Ask Spread

The gap between how much brokers will pay you to buy a currency pair versus what they'll pay you to sell it is called the bid-ask spread. Pairs with wider spreads mean you'll spend more to complete each trade, as opposed to tight spreads. Be sure to compare spreads when deciding which pairs work best for your strategy.

3. Use Leverage Wisely

Leverage gives you a bigger trading punch by letting you borrow money from your broker. It's like using a loan to control a larger investment than your own cash would allow. On the one hand, this gives you more exposure to make profits.

But, leverage is a double-edged sword. Your gains get juiced up when trades work out, but losses multiply, too, if they go the other way. It doesn't take much of a price swing against you to completely wipe out your balance if you're not careful.

That's why using leverage demands solid risk management - you've got to have a plan in place for what level of risks feels safe enough that a few bad trades won't devastate your account. Proper money management is a must when borrowing is involved.

4. Have a Plan and Master Your Emotions

Having a defined plan for entries, exits, risk control, and goals keeps you disciplined versus reacting based on feelings. Outline your strategy clearly upfront to stay focused on good decisions, not impulses.

The forex market can be a rollercoaster. Don't let fear or greed dictate your trades. Stay objective, follow your plan, and remember that even experienced traders experience losses.

How to Choose Currency Pairings in Forex Trading?

When selecting currency pairings, it’s crucial to consider both liquidity and volatility. Pairs like EUR/USD, USD/JPY and GBP/USD usually have tons of action, so it's simple to hop in and out without much price movement. More unique pairs tend to see crazier ups and downs with less trades happening, though, resulting in bigger buy-sell differences and potentially huge profits or losses. You've got to be careful with those more exotic pairs.

Carefully match your selection of traded pairs to your risk profile and strategy, and stay up-to-date on global news. Choosing the right currencies balances liquid opportunities versus potential price surprises.

How Many Currency Pairings Should I Trade?

When first getting into forex trading, focus on the pairs you know best. Taking on too many at a time can lead to mixed-up feelings and no focus hurting your plan. Start out by only looking at a few to thoroughly learn them inside and out.Pick a handful that you will closely track and learn what economic indicators affect them. This includes interest rate decisions, political news, and data releases. Over time, as you gain experience and reassurance, you might diversify your portfolio.It's paramount to grasp how each pairing behaves and the degree of volatility involved. Some pairs see wilder swings than others, meaning you got chances to profit big time but also face bigger risks. That's why keeping up with the news and using smart money management to feel confident navigating forex's tricky dynamics is key.Really knowing the ins and outs of each currency combo helps you pick pairings that balance chances to win versus unpredictability.

How to Find the Best FX Pairs to Trade

If you're looking for good currency pairs to trade, checking out liquidity, spread, and economic stability is smart. High liquidity pairs like EUR/GBP and EUR/USD tend to have small spreads between their buy and sell prices, making them good choices if you want lower costs per trade. It also helps to know how economic reports and political stuff could affect each currency so you end up with combos that match your strategy and risk comfort level. Doing your research on factors like these guides you to the top pairs.

Published August 8, 2024Disclaimer: This Is Not Financial AdviceThe content of this article is not intended to serve as financial counsel. Make sure to conduct thorough personal research and, when possible, seek guidance from a licensed financial consultant.Author:

Noah Edis, a writer in the SaaS and fintech space. Noah has contributed to SEMRush, NordVPN, and dozens of other seven-figure content companies.

Contributors:

Valeriya Kushchuk, now Narvi's Digital Marketing Manager, was previously a business reporter and marketer in the crypto space.
Sarah Ruthe, content editor.

Wrapping Up:

How Does Narvi Help as a Digital Banking Solution?

Jumping into currency trading shows why a solid digital banking setup is key. Narvi provides a slick, Nordic-designed platform that perfectly matches the needs of global companies doing forex trades.

Here’s how Narvi Payments can streamline your currency trading operations:

Dedicated IBAN accounts: Operate globally with unique bank accounts to receive payments and make transfers worldwide.
Instant and global transfers: Utilize instant SEPA payments within the EU/EEA and swift global transfers elsewhere via SWIFT network connections.
Quick and Easy Onboarding: Experience a fast, transparent, fully online setup. Easily manage teams with different access levels for slick operations.
Stay Secure and Compliant: The regulated Finnish platform keeps things safe and legit with solid compliance.

Narvi is made to smoothly handle your regular biz transfers by offering a reliable, flexible conduit tuned to your worldwide trading money flow.Take step one to a smarter way of handling your trading finances. Reach out to our team and learn how you can transform how you trade and transact globally.

The Global Currency Pairs: Majors, Minors, and the Exotics

Learn about commodity, exotic, major, and minor currency pairs as well as the workings of the forex market.

How Does Narvi Help as a Digital Banking Solution?

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