Trade Major Forex Pairs, or Minors

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The Forex market is one of the biggest and most liquid in the world, with a total daily average trading volume of USD 5.1 trillion in April 2020, according to the Bank For International Settlements ( BIS ).

Most of this trading activity is concentrated within 5 countries:

  1. United Kingdom
  2. United States
  3. Singapore
  4. Hong Kong SAR
  5. Japan

These sale desks intermediated 77% of all currency trading in April 2020, according to BIS statistics.

Since 1986, the BIS monitors all Forex market activity every three years to spot any changes in global financial markets, in order to know how currencies in the world are traded.

Some of these factors include:

  • International trades, trading volumes
  • Exchange rates
  • Widely traded currency pairs, etc.

When traders invest in the Foreign Exchange market, it’s mainly because they want to take advantage of frequently traded Forex pairs with a large average daily price, allowing them to make big profits.

The chart below is from the Triennial Central Bank Survey of the BIS, which represents the daily averages in April 2020 of the Forex Exchange market turnover by currency pairs between 2020 and 2020, net-net basis, in percent.

Market turnover by currency pairs between 2020 and 2020

The most traded currency in the world

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There are several reasons why the American Dollar is the most traded currency in the world.

Going back in history, the USD became the world’s reserve currency with the Bretton Woods Agreement in 1944, when all foreign currencies were pegged to it.

At that time, the USD was the only currency convertible in Gold, which makes it the standard unit of currency in the international commodity market today, especially with Gold and Oil.

It’s a trustworthy, stable, and reliable currency, which makes it the most used in international transactions. The American Dollar is widely accepted throughout the world as a medium of exchange, and a means of payment, in many countries.

As an example of the American Dollar’s supremacy, a few nations besides the U.S. use the U.S. Dollar as their official currency, such as El Salvador, Panama and Ecuador. This is a process called dollarization.

The second largest reserve currency

The Euro is the 2 nd most traded currency, and the 2 nd largest reserve currency.

While it was introduced on January 1 st , 1999 to 11 countries, it is now the official currency of 19 countries within the European Union.

Not all EU member states have the Euro as their main currency, but over 337 million EU citizens now use Euro coins and notes.

In addition, more than 20 countries outside the Eurozone have pegged their currencies to the Euro in order to stabilise their exchange rates, such as Bulgaria, Bosnia, and about 15 African countries.

The Yen is viewed as a safe haven

The Yen, the official currency of Japan, is the 3 rd most traded currency in the foreign exchange market.

It’s also the most liquid currency in Asia, and the 4 th most important reserve currency in the world (after the U.S. Dollar, the Euro, and the Pound Sterling), especially for Asian countries.

Even though the country has very high debt levels and doesn’t have a high growth economy, Japan seems to provide more stability than the majority of the other world economies.

For this reason, traders are confident in its economy, and the Yen is seen as a safe haven in times of high volatility and uncertainty.

The Yen carry trade is among the most well known and popular currency carry trade strategies among investors – this is where traders will borrow Yen because of the low interest rate in order to buy currencies with higher interest rates, making profits on the difference.

Remember the basics of currency trading.

When you invest in the Forex market, you buy or sell currency pairs – not currencies.

To know at which price you can do so, just have a look at FX quotes, which represent the buying (ask) and selling (bid) prices depending on your scenario:

  • If you think that the AUD/USD is going up, you would go long (buy the currency pair),
  • If you think that the GBP/JPY is going down, you would go short (short-sell the currency pair).

In the above examples, the Australian Dollar (AUD) and the British Pound (GBP) are called the base currency, while the American Dollar (USD) and the Japanese Yen (JPY) represent the quote currency.

There are different sorts of currency pairs you can trade with different kinds of trading conditions associated.

These currency pairs are the most traded. They all have the American Dollar either as a base currency, or a quote currency.

You will usually have the best trading conditions with these pairs: tighter spreads, lower margin requirements, higher leverage, etc.

        • EUR/USD Euro/U.S. Dollar
        • USD/JPY U.S. Dollar/Japanese Yen
        • GBP/USD Sterling/U.S. Dollar
        • USD/CHF U.S. Dollar/Swiss Franc
        • USD/CAD
        • U.S. Dollar/Canadian Dollar
        • AUD/USD

Minors are also called cross currency pairs. These represent less traded pairs.

They usually do not have the U.S. Dollar on either side, but they do contain one of the major currencies.

    • EUR/GBP Euro/Sterling
    • GBP/CAD British Pound/Canadian Dollar
    • NZD/JPY New Zealand Dollar/Japanese Yen
    • EUR/AUD Euro/Australian Dollar
    • GBP/JPY British Pound/Japanese Yen

    Exotic currency pairs usually have one major currency against a currency from a developing, or smaller, economy. Because these currency pairs aren’t found as often as the others they aren’t exactly most liquid currency pairs.

    They can be among the most volatile currency pairs and trading these can be more expensive, with a wider spread than more conventional pairs.

    • JPY/NOK Japanese Yen/Norwegian Krone
    • GBP/ZAR Sterling/South African Rand
    • AUD/MXN Australian Dollar/Mexican Peso
    • EUR/TRY Euro/Turkish Lira
    • USD/THB U.S. Dollar /Thailand Baht

    The most popular currency pairs between April 2020 and April 2020 were the USD/EUR, representing 23% of all transactions, followed by the USD/JPY, and the USD GPB, which represented 17.7%, and 9.2% of the transaction respectively.

    As you can see from the first image in this article, the USD is the world’s most important vehicle currency. The BIS reported that it was on one side of 88% of all trades during the period.

    The EUR and the JPY lost market share against the USD, while many currencies from emerging markets increased their share.

    In April 2020, the Chinese Renminbi (RMB) became the 8 th most traded currency, and overtook the Mexican Peso as the 1 st most traded emerging market currency.

    To maximise chances of earning the biggest profits, Forex traders often develop trading strategies around highly liquid, top traded currency pairs.

    One short-term Forex trading strategy that is often used is called “news trading” or fundamental analysis, whereby one trades according to news events.

    Trading around high-impact events consists of investing on the highest volume currency pairs – as they will usually be the most profitable currency pairs to trade.

    This means that traders will invest money during the release of economic data or other news, or during important speeches, or conference press, such as when a central bank decides whether to increase or decrease its interest rates.

    It’s one of the most aggressive and active fundamental strategies, and it’s also a high-risk, as the trading volume, and the associated volatility, are larger than under “normal” trading circumstances.

    To use this strategy, most traders need to be aware of the economic calendar.

    This all depends on the type of trader you are.

    For the short term

    For instance, a short-term trader will focus on the most traded currency pairs with the best bid/ask spread possible to make quick profits thanks to higher volatility.

    For the long term

    On the other hand, a longer-term position trader will not necessarily look for the most liquid or volatile currency pairs.

    Carry trading

    Same goes for those who make currency carry trades.

    This method focuses on the rate differential between the 2 currencies in the aim of making profits based on said difference, as opposed to trying to get the best entry and exit points possible.

    Also, remember that there is a certain degree of correlation between currencies, and consequently between currency pairs.

    If you invest on the EUR/GBP, and the EUR/CHF, both currencies are positively correlated – which means that they tend to evolve in the same direction.

    Because they both have the EUR as a base currency, if the EUR weakens against its major counterparts, then both currency pairs will lose ground, and your portfolio will take a hit.

    For this reason, be sure to diversify your FX portfolio by taking into consideration currency correlations.

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    What is the difference between major and minor forex pairs?

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    What is the difference between major currency pair and major cross currency pairs? Explain?

    There are many types of currencies that you can invest in with FOREX – in fact, there are over 80 pairs to choose from.

    The most traded currency pairs are called ‘majors’ and they compose about 85% of the entire foreign exchange market. Note that they all include the USD. These major pairs are:

    Currency pairs that do not include the US Dollar are commonly known as ‘cross currency pairs’. A few examples will be

    Major Currency Pairs

    This page covers some of the major currency pairs traded worldwide, such as EUR/USD, USD/JPY and GBP/USD. Keep reading to view live prices for the major forex pairs, and to learn what factors that impact their price movements.

    Live rates for major forex pairs

    Currency pairs explained

    A currency pair is a quotation for two different currencies. It is the amount you would pay in one currency for a unit of another currency. For instance, when a trader is quoted EUR/USD 1.13 it means that the trader can exchange 1 Euro and receive 1.13 US Dollars.

    When a currency’s value changes, it changes relative to another currency. If the EUR/USD quotation goes from 1.13 today to 1.15 tomorrow it means that the Euro has appreciated relative to the US dollar, or that the US dollar has depreciated relative to the Euro because it will cost more US dollars to purchase 1 Euro.

    What are the major currency pairs?

    The definition of ‘major currency pairs will differ among traders, but most will include the four most popular pairs to trade – EUR/USD, USD/JPY, GBP/USD and USD/CHF. ‘Commodity currencies’ and ‘cross pairs’ are also categorized as majors. Below we explore the major currency pair categories.

    Major currency pairs

    The most traded currency pairs are listed below. They represent some of the world’s largest economies and are traded in high volumes. Higher volumes tend to lead to smaller spreads.

    • EUR/USD – Euro Dollar
    • USD/JPY – Dollar Yen
    • GBP/USD – Pound Dollar
    • USD/CHF – Dollar Swiss Franc

    The EUR/USD (Euro/US Dollar) nicknamed ‘Fiber’ is the world’s most traded currency pair commanding 23% of FX transactions in 2020. The Euro and the US Dollar represent the two largest economies in the world, the US Economy and the European Union.

    The popularity of the EUR/USD ensures that it trades at tight spreads. High volumes lead to reduced price differences between the bid and offer.

    The USD/JPY (US Dollar/Japanese Yen) is also known as ‘The Ninja’ and is the second most traded currency pair. The Yen is often used by carry traders who borrow the Yen and invest it into higher yielding currencies. The Bank of Japan has had to combat low inflation and growth for many years, and as a result it has a very low interest rate.

    The USD/JPY is also traded in extremely high volumes which leads to low bid-ask spreads and lots of liquidity. The Yen is also known as a safe-haven currency amongst traders.

    The GBP/USD (Pound Sterling/US Dollar) is nicknamed ‘Cable’ due to the undersea cables that used to carry bid and ask quotes across the Atlantic Ocean.

    This major forex pair shares similarities with the EUR/USD. Both are highly correlated because the United Kingdom’s economy is tied to the European Union.

    Traders enjoy tight bid-ask spreads on the GBP/USD due to its high liquidity.

    The USD/CHF (US Dollar/Swiss Franc), nicknamed ‘Swissy’, derives its popularity from the Swiss Franc’s safe-haven status. When risk/volatility enters the market, traders bid up the Swiss Franc because the Swiss economy is seen to have lower risk.

    Commodity currencies

    Commodity currencies like the Aussie, Loonie and Kiwi are forex pairs that are greatly influenced by commodity prices.

    The AUD/USD (Australian Dollar/US Dollar), or ‘Aussie’, is greatly affected by mining commodities, farming of beef, wool and wheat. The Aussie also tends to do well when China does well because the two countries are big trading partners. The Reserve Bank of Australia (RBA) also has major influence over the AUD/USD.

    The USD/CAD (US Dollar/Canadian Dollar) or ‘Loonie’ is also heavily affected by oil, timber and natural gas. Interestingly, the Canadian dollar is closely tied to the US economy.

    The NZD/USD (New Zealand Dollar/US Dollar), also known as the ‘Kiwi’, is heavily influenced by data releases of agriculture and tourism.

    As with all currencies, these central banks (Federal Reserve and Reserve Bank of New Zealand) shouldn’t be underestimated. Changes to monetary policy from either of them can lead to NZD/USD volatility.

    Cross pairs

    Cross currency pairs do not include the US Dollar. Historically, currencies had to be exchanged into US dollars before they could be exchanged into other currencies. The popular cross pairs are the EUR/GBP, EUR/JPY and the EUR/CHF.

    This cross pair explores the relationship between the UK economy and the European Union. Forecasting the EUR/GBP can be difficult because the economies are interlinked.

    Some traders believe EUR/JPY is easier to forecast larger trends than USD/JPY because the US dollar and the Japanese Yen are both seen as safe-haven currencies. This makes the EUR/JPY a popular cross currency pair.

    Like the EUR/JPY, the EUR/CHF gains its popularity from the fact that the Franc is a safe-haven currency. The EUR/CHF is also therefore seen as a popular currency cross pair during times of market volatility.

    What affects the rates of major currency pairs?

    The main fundamentals that affect currency pairs are changes in overnight interest rates by central banks, economic data and politics.

    Interest Rates – Central banks have it in their mandate to maintain monetary and financial stability. They do this by influencing interest rates. When a central bank increases its overnight interest rate it causes increased demand for that currency because investors and traders seek the higher yield which in turn appreciates the currency relative to other currencies.

    Economic Data – Economic releases are reports that give traders a glimpse into the performance of a nation’s economy. Important economic data that influences currency rates include CPI (inflation) data, Nonfarm payrolls (employment data), gross domestic product (GDP), retails sales, purchasing managers index (PMI) and others.

    Politics – Trade wars, elections, corruption scandals and changes in policies introduce instability which reflects in the forex market. The government has the power to affect the economy which can boost or depreciate a currency’s relative value.

    Volatility – Traders usually take smaller positions on the more volatile currencies and bigger positions on less volatile positions. Volatility can strike any of these pairs at any time due to abrupt changes in interest rates, drastic changes to the economic outlook, or political instability. It is important to follow these markets dedicated pages above for up to date news and analysis.

    Tips for trading currency pairs

    Forex traders utilize discipline and consistency in their trading. Here’s some expert tips to kickstart your forex trading:

    • If you’re new to forex trading, choose liquid currency pairs like the EUR/USD or the USD/JPY. Then analyze the fundamentals and the technicals until you are familiar with what moves the currency pairs.
    • Determining the appropriate leverage is of key importance when trading currencies. Lots of beginner forex traders wipe out their accounts because they use excess leverage.
    • A forex trading strategy can help to ensure traders are consistent and disciplined. This can lead to profitability and deter loss causing behavior. Read our Traits of Successful Traders guide to avoid the number one mistake traders make.
    • Choose the best trading time frame to suit your needs. You can choose from swing-trading, day-trading or scalping depending on which one appeals to you most.
    • Use our free trading forecasts on major currencies to stay ahead of the forex market. And for daily updates on major forex pairs, view our currency market news and technical analysis articles.
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