Types of Currency Pairs|Majors/Minors/Exotics
If you think about trading on Forex, you have to know some basic knowledge. One of these is currency pairs.
What is currency pair?
Currencies are always traded in pairs. A currency pair indicates two currencies that are being traded at a quoted price. The quoted price is called the FX rate or exchange rate. It is a floating number that rises and falls. The first currency in a currency pair is called the base currency, whereas the second currency is referred to as the quote currency. All currency pairs are denoted with the three capital letters: EUR/USD and USD/JPY.
Base and quote currency
The base currency is the first currency in a currency pair quotation, while the quote currency is the second half of the quotation. The currency pairs AAA/BBB are sometimes displayed as six letters with a dash.
The base currency in this situation is AAA, and the quote currency is BBB.
If you are purchasing a forex currency pair:
- The first currency (the base) is which you are buying effectively.
- The second currency (the quote) is which you are selling against.
The price in the code represents the cost of purchasing the base currency in the quote currency.
A bid price is the highest price at which a buyer is willing to pay for a stock. Whereas, a seller's ask price is the lowest price he is willing to accept. This is essentially the price at which the seller is willing to sell.
The difference between these prices is known as Spreads. This is an indirect commission that is charged by the broker from the trader on an open trade. Spreads are far more important to the traders than it is to the broker since it is the cost that they have to bear to do business with the broker.
Majors/Minors/Exotics currency pairs
And let’s talk about the types of Forex currency pairs.
There are 3 types of pairs:
Major currency pairs
When trading in the FX market, traders have a variety of currency pairs to pick from. Any currency combination that includes the US dollar (USD), the world's largest economy, is considered a major currency pair. In the foreign exchange market, major currency pairs are the most commonly traded currencies.
EUR/USD (Euro Dollar)
GBP/USD (Pound Dollar)
USD/CHF (Dollar Swissy)
USD/JPY (Dollar Yen)
AUD/USD (Aussie Dollar)
NZD/USD (Kiwi Dollar)
USD/CAD (Dollar Loonie)
Minor currency pairs
Minor currency pairs are created by merging two major currency pairs that do not include the US dollar. These currency pairs are more volatile than major currency pairs, although not as much as exotic currency pairs. Some smaller currency pairs, such as GBP/EUR and AUD/JPY, reflect currency pairs of countries with active trading links, resulting in enough liquidity. Other minor currency pairs are less active, such as CHF/JPY and EUR/JPY.
|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|
Exotic currency pairs
In the forex market, exotic currency pairs are the third most traded. One of the eight major currencies and a currency from a developing or emerging economy are examples of these partnerships. Exotic vs exotic pairs, like NOK/TRY or TRY/RUB, are also popular among traders.
Exotic forex pairings might help you diversify your trading by giving you more options. Exotic currencies have a higher level of volatility, which increases the risk of trading them but also increases the chances of discovering trading opportunities if the big FX pairs are unavailable. Further, the emerging market currencies offer a higher level of interest rate, which can make them attractive for carrying trades.
An exotic currency pair, for example, is produced when an exotic currency, such as the South African Rand (ZAR) or the Swedish Krona (SEK), is combined with a major currency, such as the Euro (EUR) or the US Dollar (USD) (USD). The Turkish Lira (TRY) and the Singapore Dollar (SGD) are two examples of popular exotic currency pairs (SGD).
List of others:
AUD/NOK (Australian Dollar/Norwegian Krone)
AUD/PLN (Australian Dollar/Polish Zloty)
AUD/SEK (Australian Dollar/Swedish Krona)
AUD/SGD (Australian Dollar/Singapore Dollar)
CAD/SGD (Canadian Dollar/Singapore Dollar)
CHF/SEK (Swiss Franc/Swedish Krona)
CHF/SGD (Swiss Franc/Singapore Dollar)
EUR/CZK (Euro/Czech Republic Koruna)
EUR/HUF (Euro/Hungarian Forint)
EUR/NOK (Euro/Norwegian Krone)
EUR/PLN (Euro/Polish Zloty)
EUR/RON (Euro/Romanian Leu)
EUR/RUB (Euro/Russian Ruble)
EUR/SEK (Euro/Swedish Krona)
EUR/SGD Singapore Dollar)
EUR/TRY (Euro/Turkish Lira)
EUR/ZAR (Euro/South Africa Rand)
GBP/CZK (British Pound/Czech Republic Koruna)
GBP/HUF (British Pound/Hungarian Forint)
GBP/MXN (British Pound/Mexican Peso)
GBP/NOK (British Pound/Norwegian Krone)
GBP/PLN (British Pound/Polish Zloty)
GBP/SEK (British Pound/Swedish Krona)
GBP/SGD (British Pound/Singapore Dollar)
GBP/TRY (British Pound/Turkish Lira)
MXN/JPY (Mexican Peso/Japanese Yen)
NOK/JPY (Norwegian Krone/Japanese Yen)
SGD/JPY (Singapore Dollar/Japanese Yen)
TRY/JPY (Turkish Lira/Japanese Yen)
ZAR/JPY (South Africa Rand/Japanese Yen)
USD/CZK (US Dollar/Czech Republic Koruna)
USD/HUF (US Dollar/ Hungarian Forint)
USD/ILS (US Dollar/Israeli Shekel)
USD/MXN (US Dollar/Mexican Peso)
USD/NOK (US DollarNorwegian Krone)
USD/PLN (US Dollar/Polish Zloty)
USD/RON (US Dollar/Romanian Leu)
USD/RUB (US Dollar/Russian Ruble)
USD/SEK (US Dollar/Swedish Krona)
USD/SGD (US Dollar/Singapore Dollar)
USD/THB (US Dollar/Thai Baht)
USD/TRY (US Dollar/Turkish Lira)
USD/ZAR (US Dollar/South Africa Rand
Which pairs should I trade?
Traders typically opt to trade the EUR/USD because of its high liquidity and tight spreads (starting at 0 pips) resulting from high trading volume. Moreover, a lot of news updates are available for underlying economies in addition to strong fundamentals as well as technical highlights which further strengthen the predictability. The major currency pair is the most popular pair for forex traders as it comprises the USD which is considered the safest haven and EURO also stems from a strong as well as renowned economy. Both of two is most traded currencies.
Best currency pairs for beginners
We would recommend that you trade the EUR/USD, USD/CHF, USD/JPY, and GBP/USD pairs. These are the four most liquid pairs on the forex markets. Experienced traders usually recommend beginner to the forex trading beginner to trade the currency pairs that have the highest liquidity. This is because it is easier to trade and you do not need a lot of money to trade these pairs. As you're beginning, we would recommend that you practice trading with a demo account to get a feel for the market.