In forex trading, we simultaneously buying and selling currencies. Usually, those currencies are traded through a broker or a dealer. Besides, those currencies are also traded in pairs. Thus, it is important for traders to know the types of currency pairs.
In buying and selling currency, traders have to imagine each currency pair in a tug of war, with each of the currency on each side of the rope. If a trader buys a currency pair, then the trader buys the base currency and implicitly sell the quoted currency.
While the exchange rates fluctuate according to which currency is stronger at the moment.
Major Currency Pairs
The most traded currency pair is the euro against the U.S. dollar (EUR/USD). That pair is traders favorite pair across the world. Consequently, that pair is the most liquid currency pair.
The total currency pairs that we have is as many as the total of our existing currency. People categorize all currency pairs according to the volume that the trade using that pair on a daily basis for a pair.
The currencies that trade the most volume against the U.S. dollar named as the major currencies. Those major currencies include the EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, and USD/CAD.
The final two currency pairs named as commodities currencies because both Canada and Australia are rich in commodities. Besides, their commodities’ prices affect those two countries.
Also read: What is a Forex Micro Account?
Minors and Exotic Pairs
Contrary to the major pairs, the minor or crosses pairs are not associated with the U.S. dollar. These pairs have slightly wider spreads and are not as liquid as the majors.
Yet, they are still sufficiently liquid markets nonetheless. Some examples of crosses include the EUR/GBP, GBP/JPY and EUR/CHF.
Meanwhile, exotic currencies pairs are those which include currencies of emerging markets. These pairs are not as liquid, and the spreads are much wider. An example of an exotic currency pair is the USD/SGD (U.S. dollar/Singapore dollar).
