Negosentro | Majors vs. Minors vs. Exotics – Understanding Forex Currency Pairs | The foreign exchange market is a highly-active domain where participants trade currency pairs to acquire gains. However, you should know that not all currency pairs incorporate common properties even though they are constituted similarly. While some traders opt for major currencies like USD and GBP, others may prefer engaging with minors. For example, in terms of forex trading Philippines is a leading nation, despite the fact that the local Peso is not a popular currency for forex investors.
Hence, to enhance your trading experience, you must be well-informed about the different types of pairs and how they differ from each other. Here are the three main categories of currency pairs with their key features.
Major currency pairs
The majors are currency pairs that are most popular and widely traded among the global financial communities. They are the most liquid pairs with massive trading volumes and high supply & demand. Consequently, they also have relatively lower spreads or meager brokerage commissions compared to other currency groups.
Moreover, note that all majors integrate USD either as a “base” or “quote,” though not all USD pairs are accepted as majors. In the major pairs, the USD counterparts include some of the most stable and globally acclaimed currencies, like GBP, EUR, CAD, AUD, NZD, and JPY.
Following are the seven currency pairs that are generally termed as “major currency pairs” in the forex sphere:
Minor currency pairs
Minors are currency pairs incorporating any two major currencies apart from the USD. Although both the currencies are from the ‘major’ category, the absence of USD turns them into ‘minor’ pairs. Generally, these pairs have suitable liquidity and can be efficiently traded with tight spreads. However, in some cases, you may encounter low liquidity and a vast difference in bid/ask prices.
Some major and actively-traded minor pairs include EUR/GBP, GBP/JPY, and AUD/NZD.
Before knowing about exotic pairs, you must understand what exotic currencies are. Usually, currencies of emerging markets are termed “exotics.” All the currencies aside from the major eight currencies mentioned above are exotics.
Exotic currency pairs include one exotic and one major currency. While there are a large number of exotic currencies, only a handful of them are utilized in forex trading pairs. Following are some noteworthy exotic currency pairs:
Due to their unstable economies and weak structures, exotic pairs are highly volatile and assimilate incredibly large spreads. Depending on the currency pair, the spreads can range from 5 pips to 800 pips. Further, although forex is a 24/5 market, you may not access some exotic pairs intermittently due to exceptionally low market liquidity.
Which type of currency pair should you trade?
Undoubtedly, major and minor currency pairs are most preferred by traders due to their high trading volumes and substantial liquidity. In addition, by choosing these pairs, you can experience better trading conditions like low spreads and swift order executions.
On the other hand, exotics carry less importance from the trading perspective as they involve a degree of risk. Moreover, because of extremely wide spreads, your trades may not get executed at the specified price. However, if you want to take advantage of exotics’ volatility and trending tendency, remember to properly manage risks and carefully examine all pros and cons beforehand.
Negosentro | Majors vs. Minors vs. Exotics – Understanding Forex Currency Pairs