What Are Currency Pairs in Forex Trading?
Currency pairs form the foundation of the forex market, representing the exchange rate between two currencies. Each currency pair consists of a base currency, listed first, and a quote currency, listed second. When engaging in trading, you are essentially speculating whether the base currency will rise or fall in value compared to the quote currency.
Before we explore the different categories of currency pairs, it’s important to note that they are not all the same. There are significant variations in their liquidity, volatility, trading expenses, and behavioural patterns—these aspects play a crucial role in shaping your trading experience and potential results.
The Three Categories of Forex Pairs
Currency pairs in the forex market can be divided into three main categories: major, minor, and exotic. Each of these categories has specific traits that cater to various trading strategies, risk levels, and market dynamics.
Major Currency Pairs Defined
Major pairs always include the US dollar (USD) paired with one of the world’s other most economically influential currencies. These pairs represent the most significant economies globally and account for approximately 80% of all forex trading volume worldwide.
Minor Currency Pairs Explained
Minor pairs, also called cross-currency pairs, don’t include the US dollar. Instead, they pair major currencies against each other, such as the euro against the British pound (EUR/GBP) or the Japanese yen against the Swiss franc (JPY/CHF).
Exotic Currency Pairs Overview
Exotic pairs combine a major currency (usually the US dollar) with the currency of a developing economy, such as USD/TRY (US dollar/Turkish lira) or USD/ZAR (US dollar/South African rand).
Comprehensive Comparison Table: Major, Minor, and Exotic Currency Pairs
|
Characteristic |
Major Pairs |
Minor Pairs |
Exotic Pairs |
|
Components |
USD paired with EUR, JPY, GBP, AUD, CAD, CHF, or NZD |
Major currencies paired with each other (no USD) |
Major currency paired with emerging market currency |
|
Examples |
EUR/USD, USD/JPY, GBP/USD, AUD/USD |
EUR/GBP, EUR/JPY, GBP/JPY, AUD/NZD |
USD/TRY, USD/ZAR, USD/MXN, EUR/PLN |
|
Liquidity |
Extremely high |
High to moderate |
Low to very low |
|
Spread costs |
Lowest (1-3 pips) |
Low to moderate (3-5 pips) |
High to very high (5-100+ pips) |
|
Volatility |
Moderate |
Moderate to high |
High to extreme |
|
Trading hours |
24-hour liquidity |
24-hour with lower overnight liquidity |
Limited to regional trading hours |
|
Market factors |
Global economic events, Fed policy |
Regional economies, relative interest rates |
Local politics, regional economics, capital controls |
|
Technical analysis applicability |
Yes |
Yes |
Yes |
|
Volume |
~80% of global forex volume |
~15% of global forex volume |
~5% of global forex volume |
Major Currency Pairs in Detail
Major pairs represent the foundation of the forex market and offer several distinct advantages for traders at all experience levels:
The Seven Major Pairs
The most traded major pairs include:
- EUR/USD (Euro/US Dollar) – “The Fiber”
- USD/JPY (US Dollar/Japanese Yen) – “The Ninja”
- GBP/USD (British Pound/US Dollar) – “Cable”
- AUD/USD (Australian Dollar/US Dollar) – “The Aussie”
- USD/CAD (US Dollar/Canadian Dollar) – “The Loonie”
- USD/CHF (US Dollar/Swiss Franc) – “The Swissie”
- NZD/USD (New Zealand Dollar/US Dollar) – “The Kiwi”
These pairs may feature the highest trading volume, the tightest spreads, and the consistent execution – which could make them more accessible for traders new to the forex market.
Advantages of Trading Major Pairs
Trading major pairs offers several benefits:
- Lowest transaction costs due to tight spreads
- Highest market liquidity providing consistent execution
- Abundant analysis and research available
- Less prone to manipulation or unexpected gaps
- Smoother price action conducive to technical analysis
Minor Currency Pairs in Focus
Minor pairs (or crosses) offer interesting alternatives to the majors, providing exposure to specific economies without direct USD influence.
Popular Minor Pairs
Common minor pairs include:
- EUR/GBP (Euro/British Pound)
- EUR/AUD (Euro/Australian Dollar)
- GBP/JPY (British Pound/Japanese Yen)
- EUR/JPY (Euro/Japanese Yen)
- AUD/NZD (Australian Dollar/New Zealand Dollar)
- CHF/JPY (Swiss Franc/Japanese Yen)
These pairs often display unique characteristics based on the regional economic relationships they represent, creating potential trading opportunities not available in major pairs.
Trading Considerations for Minor Pairs
Minor pairs typically feature:
- Slightly wider spreads than majors
- Distinct technical patterns and trends
- Strong influence from regional economic factors
- Occasionally, more pronounced trending behavior
- Opportunity for diversification beyond USD-based pairs
Exotic Currency Pairs Characteristics
Exotic pairs represent the frontier of forex trading, offering both higher risk and potential for higher returns for experienced traders.
Common Exotic Pairs
Examples of frequently traded exotic pairs include:
- USD/TRY (US Dollar/Turkish Lira)
- USD/ZAR (US Dollar/South African Rand)
- USD/BRL (US Dollar/Brazilian Real)
- USD/MXN (US Dollar/Mexican Peso)
- EUR/PLN (Euro/Polish Zloty)
- USD/SGD (US Dollar/Singapore Dollar)
These pairs connect major economies with emerging or frontier markets, creating unique price dynamics.
Risk Factors in Exotic Pair Trading
Exotic pairs come with distinct challenges:
- Much wider spreads increasing transaction costs
- Lower liquidity potentially leads to slippage
- Greater sensitivity to local political developments
- Potential for overnight gaps and price jumps
- Higher volatility requiring stricter risk management
Choosing the Right Currency Pairs for Your Trading
Your selection of currency pairs should align with your trading style, risk tolerance, and market knowledge.
At Mitrade, we offer competitive spreads across all categories of currency pairs, with comprehensive educational resources to help you understand their unique characteristics. Our platform provides the tools and information needed to make informed decisions regardless of which forex pairs you choose to trade.
Explore opening an account with Mitrade today to explore the full range of available currency pairs and begin trading with professional-grade tools and dedicated support.