The major pairs of currencies, which are only seven, are the gold mine of Forex Trading, and it is no wonder why. They are the most heavily traded currency pairs, and they contribute to a large volume in forex economic transactions.
But what exactly are Major Currency Pairs? And more importantly, what are Forex Currency Pairs?
What are Currency Pairs?
In basic financial markets, the traders seek to profit by comparing the prices of different commodities. They then invest in the commodity that is more valuable and which will bring them the most profit.
This is no different than in the Forex Exchange Market, where, instead of speculating the value of a commodity, the traders speculate the currency prices of one currency against another. When two currencies are quoted against each other and their values compared, they become a Currency Pair.
The Currency Pair is expressed using the ISO Currency Codes of the two types of currencies. For example, a Currency Pair between the US. The Dollar and the Canadian dollar is expressed as USD/CAD and the Currency Pair between the British Pound Sterling and the Australian dollar is GBP/AUD.
The currency that is listed first is called the base currency while the currency listed second is the quote currency or the counter currency. In the USD/CAD currency pair, the base currency is CAD, while the quote currency – US dollars.
How Currency Pairs Work
In Currency trading, it is better to have a basic understanding of currency before deciding on trading and understanding how currency pairs work is the best place to start.
As mentioned before, a currency pair is a quotation that compares the value of two currencies against each other. The relative value of a currency pair is then expressed by how much the first currency is worth compared to the second currency. In other words, how much of the second currency is required to purchase one unit of the first currency.
For example, for a Currency Pair EUR/USD = 1.219, it means that a trader will need 1.219 USD to buy 1 Euro. This also means that the value of the EUR is higher than the value of the USD by 0.219., and consequently, that the exchange rate of EUR/USD is 1.219
During trading, the traders determine what pairs they want to buy or sell according to changing rates of exchange. In the EUR/USD example, a trader might buy the pair if they speculate that the Euro’s value will increase as compared to USD.
Alternately, the trader might decide to sell the same pair if they speculate that the USD rate will increase compared to the EUR rate.
Another thing worth noting in the working of currency pairs is the pairs’ Currency Correlations. A Currency Pairs’ Correlation is the similarities between several pairings, and it useful when determining what pair to buy or sell.
The Major Currency Pairs List and the Other Currency Pairs
In a financial market, the larger the trade value between two individual traders, the larger the profits. Similarly, in the Forex Exchange Market, the larger the trade value between two countries, the higher the value of their liquid currency pairs.
The currency pairs that have the greatest value are then referred to as the Major Pairs or Popular Currency Pairs. These pairs are the most heavily traded and most popular pairs, and as a result, they are the main drivers of the forex market.
What Currency Pairs Make Up the Major Pairs List?
As one of the largest liquid markets, Forex has hundreds of currency pairs involved in trading. However, among the hundreds of pairs, only a few are considered valuable in trading, and only seven are considered “Major/Popular:”
Here is a list of Popular Forex Pairs:
What Makes a Currency Pair “Major”?
A Major Pair is defined as one that has the greatest value in the market. But, what makes this value greater than the rest of the pairs? The answer is simple – the national economy of the countries whose currencies are involved in the pairs.
In the forex exchange market, countries with the largest economy make up the MajorPairs, while those with low economy do not. This is particularly evident from the above list.
In the list, the vast majority of the major forex pairs come from the USD, Euro, Swiss franc, Japanese dollar yen and the British pound. These currencies have one thing in common – the economies of their countries, like the Swiss economy or the American economies, were listed as one of the top economies in the world in 2021.
Another reason that makes a currency pair “major” in the used foreign exchange market is the stability of the currency. A stable currency is more appealing to traders in the currency markets, and they are more inclined to trade with a pair that has that currency.
Benefits of the Major Currency Pairs
Here are three benefits of trading the main currency pairs:
- They have a large trading volume. Because of their large volumes of trades, these pairs tend to have tighter spreads than other pairs, which is appealing to most traders.
- The pairs are versatile meaning, traders can trade with them at any time of day and during any day of the week, including holidays.
- They are stable, which means it is hard for the prices of a single currency pair to fluctuate suddenly. The relationship between currency prices in the pairs is also stable, which attracts most traders.
- The tight spreads allow traders to enter and exit at any given time without risking losses.
Other Currency Pairs
Apart from the major currency pairs, here are other types of currency pairs worth noting:
- Minor Currency Pairs: These are pairs that are no associated with the USD. Also referred to as cross currency pairs, these pairs do not have as much virtual funds as the majors, but they are still valuable in trading. Examples include EUR/GBP and EUR/CHF.
- Exotic Currency Pairs: exotic pairs consist of an emerging-marketing currency paired alongside a major currency. Examples include USD/TRY, USD/MXN and EUR/HUF.
- Commodity Pairs: Also referred to as commodity currencies, there are pairs that come from countries that are rich in commodities. These pairs heavily depend on the commodity prices and the price movement of these commodities. Examples are USD/CAD, AUD/USD and NZD/USD.
Apart from taking advantage of the trading currencies and their pairs, there are still other numerous forex trading strategies that a trader should practice before taking part in forex trades. Some of these strategies include having a consistent methodology, defining their goals and trading style, choosing the most suitable brokerage and trading platform, knowing what type of pairs are volatile currencies and determining their entry and exit points.
Among the above trading strategies, choosing the best brokerage and trading platform is perhaps the most important. One mistake traders make is choosing a company that is not suitable for them. A good brokerage company for a trader has their best interest at heart and is suitable for the type of analysis the trader wants to perform.
An example of a good brokerage company is Tixee, which prioritizes their customers’ needs before anything else. Click here to register for a trading account in Tixee.
Frequently Asked Questions
What Affects the rates of the Currency Pairs?
The foreign exchange rate of currency pairs for traders is affected by the fluctuating strength of the currencies. The global and central banks provide these rates and update them in real-time.
What is the most secure currency in the world?
Even with technical analysis, it is hard to determine the most secure currency in the world because each currency has its advantage. However, the safest currencies in the world are stable, trustworthy and reliable.
Which Currency is best to buy now
The best currency to buy now is one that has the best rate of exchange and whose monetary policy is not limiting.
Which is the biggest forex market in the world?
The world’s largest foreign exchange market is based in London, with 37% of all forex turnover made there.
Which Currency Pair has the highest pip value?
It is hard to determine which currency pair has the highest pip value because the rates of exchange keep changing.
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.
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