Chapter 2 Common Currency Pairs
Currencies are always traded in pairs because traders are actually buying one currency and selling another simultaneously. The currency pair itself can be thought of as a single unit, an instrument that is either bought or sold. Examples are the euro and US dollar (EUR/USD), or the British pound and Japanese yen (GBP/JPY).
Major Currency Pairs
The currency pairs listed below are considered the “major currency pairs.” These most-traded pairs all contain the U.S. dollar (USD) and account for 80% of all the trades in the forex market.
The 7 major currency pairs are usually traded with tight spreads, which is the difference between the buy and sell price, thus lowering traders cost.
A currency pair that does not contain USD is called a cross currency pair, such as GBP/JPY. A currency pair that involves the euro is often called euro cross, such as EUR/GBP.
Other than major currency pairs, other types of currency pairs, such as minor and exotic currency pairs, are also traded in the market, although with a much lower trading volume.
Minor Pairs
Currency pairs that are not paired with the US Dollar but consist of the Euro, the UK Pound and Yen are minor pairs. These are the three most traded currencies beside the US dollar.
Exotic Pairs
Currencies of emerging economies paired with major currencies. These pairs are not traded as often as the majors or minors currency pairs. It includes: USD/PLN (US dollar vs Polish zloty) , GBP/MXN (Sterling vs Mexican peso), EUR/CZK, to name a few.
Regional Pairs
Pairs classified by regions – such as Scandinavia or Australasia. Includes: EUR/NOK (Euro vs Norwegian krona), AUD/NZD (Australian dollar vs New Zealand dollar), and AUD/SGD.
