As we have previously looked at, unlike other markets, currencies are traded as pairs.
There are many different currency pairs you can trade from the majors to the exotics.
Each Forex pair falls under a different category and in this lesson we look at the different categories of Forex pairs and what the major differences are.
What are the Major Forex Pairs?
Different traders have different opinions on what exactly constitutes a ‘major Forex pair’.
Most agree that the four big pairs are included; EUR/USD, USD/JPY, GBP/USD and USD/CHF as well as what is known as the ‘commodity currencies’ against the US dollar that include the AUD/USD, USD/CAD and NZD/USD.
You will notice that all of these pairs include that USD. The reason that the majors are made up of the USD is because of how Forex was historically created and also the amount of trade the USD carries out.
USD Forex pairs trade by far and away the most currency of any world currency.
Because these pairs are the most heavily traded they will often have the lowest trading costs and smallest spreads.
List of Forex Major Pairs
Minor and Cross Forex Pairs
When referring to a ‘minor pair’, traders are normally referring to other non USD Forex pairs.
This is very similar for cross pairs. Before there were cross pairs, trading pairs such as the EUR / GBP was not so easy. Currencies had to be swapped into USD and then converted into the new currency.
Then currency cross pairs were created. This allowed traders to trade different cross pairs without the need to involve the USD. An example could be trading the GBP / JPY.
Below is a List of Example Forex Cross and Minor Pairs
Exotic Forex Pairs
These pairs are often known as the wild west of the Forex market.
The ‘exotic’ Forex pairs are made up of smaller economies.
Because these economies are far smaller, the currencies are traded far less.
Why does this matter to you? Because the exotic currency pairs will have the highest trading costs and commissions.
Exotic currency pairs will also often have the most wild swings due to the thinner market liquidity compared to the major or minor pairs.
Below is a list showing example exotic Forex pairs;
