Major, Minor and Exotic Pairs In Forex

While forex is the world's largest and most liquid market, it offers endless possibilities for investors to make the most of it. People swap currencies and speculate over their ever-changing prices to make profits. However, it is also known to be one of the riskiest investment forms. You need sound market knowledge and experience to survive its volatility. The first step to comprehending the complexities of forex trading is to understand how currency pairs work. This article explains different types of currency pairs, highlighting their differences and the factors influencing their movements. 

Types of Currency Pairs - Understanding The Difference

There are three main types, including major, minor and exotic currency pairs. 

Majors 

Major currency pairs consist of the world's strong economies, such as US Dollar (USD), Euro (EUR), British Pound (GBP), Swiss Franc (CHF), Australian Dollar (AUD), Japanese Yen (JPY), and Canadian Dollar (CAD). Because of their robust economies, major pairs are considered more stable compared to minors and exotics. 

Being highly susceptible, they frequently react to international political and economic developments. In major currency pairs, the US dollar serves as a standard against which other currencies are measured. 

Notably, currency combinations involving Euro, the British Pound, the Japanese Yen, and the Swiss Franc are among the most actively traded pairs in the major pairs category. Traders seeking liquidity and price transparency always prefer these pairs because of the many opportunities they offer. 

Minors 

Unlike majors, the base and quoted currencies in minor currency pairs do not include the US dollar, such as EUR/GBP, GBP/JPY, etc. While the prices of these pairs might be affected by the economic conditions of the respective countries, traders frequently compare the outlook of both countries to make educated guesses concerning their upcoming trends. EUR/GBP and GBP/JPY are known to be the most prominent pairs among minors. Traders wishing to limit their exposure to the US dollar choose these pairs because of their diversification opportunities.

Exotics

Regarding exotic pairings, one big currency and another from a much smaller economy make up an exotic currency pair. For instance, the USD/SGD and the EUR/TRY are two pairs of currencies that use these symbols.

Unlike major and minor pairs, exotic ones typically have higher spreads and less liquidity. Due to each country's different economic and political climates, they are more prone to swings in value. Due to the higher volatility associated with exotic pairs, traders typically invest less of their total capital to trade them. 

Majors, Minors And Exotic Pairs - Making The Right Choice

Whether you wish to trade major pairs or prefer navigating possibilities in minor and exotic currency pairs, knowing their differences helps you make better trading decisions. It is essential for your trading strategy that you choose the suitable currency pairings to trade. For instance, major currency pairings are best suited for novice traders because of their consistency. 

On the other hand, more experienced traders may consider trading minor and exotic currency pairs for better diversification and possible rewards. Remember, you must also consider several factors, including trading hours, volatility, and your comfort level with risk when selecting your preferred currency pairings.