Currency pairs explained
Different types of currency pairs
As you’ve now learnt, the US dollar is by far the most frequently traded currency in the world. As a result most currencies are quoted against US dollar. However, there are several different types of currency pairs used when referring to forex trading, each of which are split into groups depending on the amount of trading activity and liquidity. These are known as majors, minors (or crosses) and last but not least exotic pairs.
Major currency pairs
The most traded currency pairs in the world are called the majors. They are generally the most liquid and attractive to all types of forex traders. The EURUSD is by far the most traded pair, representing close to 30% of all daily forex trades on the entire forex market. Currencies not classed as major currencies, but are normally traded against a major currency are called minor currencies and crosses.
|British pound/US dollar
|United Kingdom/United States
|US dollar/Japanese Yen
|US dollar/Swiss franc
|US dollar/Canadian dollar
|Australian dollar/US dollar
|New Zealand dollar/US dollar
|New Zealand/United States
Minor currency pairs and crosses
Currency pairs that do not contain the US dollar are known as ‘crosses’. A currency pair involving a major non-US dollar currency, would also be known as a ‘minor currency pair’.
The most common crosses are pairs derived from the three major non-US dollar currencies - Euro, Great British Pound and Japanese Yen. For example, pairs that involve the euro are called ‘euro crosses’. Below is a list of euro, pound, yen and other crosses.
Euro (EUR) crosses
Pound (GBP) crosses
|British pound/Australian dollar
|British pound/Canadian dollar
|British pound/Swiss franc
|British pound/New Zealand dollar
Yen (JPY) crosses
|British pound/Japanese yen
|Swiss franc/Japanese yen
|Canadian dollar/Japanese yen
|Australian dollar/Japanese yen
|New Zealand dollar/Japanese yen
|Australian dollar/Canadian dollar
|Australian dollar/New Zealand dollar
|Australian dollar/Swiss franc
|Canadian dollar/Swiss franc
|New Zealand dollar/Canadian dollar
|New Zealand dollar/Swiss franc
Exotic currency pairs
Trading exotic pairs offers you exposure to a wide range of developing and emerging market economies across Asia, the Middle East and Africa. In general, exotic pairs are not traded as often as majors or crosses, which in turn means they are not very liquid markets and lack consistent market activity.
There are often pros and cons associated with trading exotic currency pairs. Because they are not so widely traded, they can often be subject to higher trading fees, however when the market moves they can be subject to some wild price fluctuations (suitable for the more experienced trader). Below is a list of some of the main currency pairs referred to when talking about exotic pairs.
|US dollar/Swedish krona
|US dollar/Norwegian krone
|US dollar/Turkish lira
|US dollar/Mexican peso
|US dollar/South African rand
|United States/South Africa
|US dollar/Polish zloty
|US dollar/Singapore dollar
In forex, many currency pairs (especially the majors) have particular nicknames which are commonly used in the market. Many even have an interesting story as to why they were even nicknamed that in the first place. For example, the FX pair GBPUSD is also known as ‘cable’. This dates back to the 19th century, when a communications cable ran across the Atlantic Ocean floor to get the exchange rate between the US dollar and the British pound.
In some cases, the currency by itself is known by a different name. For example, the US dollar is often referred to as the ‘greenback’, while you may hear the British pound referred to as ‘sterling’. Below are a list of the most popular currency pair nicknames.
GBPUSD → Cable
EURUSD → Fiber
EURGBP → Chunnel
USDCAD → Loonie
AUDUSD → Aussie
NZDUSD → Kiwi
GBPJPY → Guppy
EURJPY → Yuppy
USDCHF → Swissy
Currencies are often abbreviated to a three-letter currency codes. The first two letters symbolise the name of the country, while the third is the country’s currency. Let’s look at a few examples…
GBP → ‘GB’ stands for Great Britain, while the ‘P’ stands for Pound
USD → ‘US’ stands for United States, the ‘D’ stands for Dollar
JPY → ‘JP’ stands for Japan, the ‘Y’ stands for Yen
In trading you will hear a lot about 'pips' and 'spreads'. Learn about pips in forex, and how different factors can influence spreads.
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