Major Currency Pairs Traded in the Forex Market and Minor/Crosses
Currency Pairs traded in the online forex trading market are classified in two categories depending on the volume of trade of these currency pairs. Currency Pairs with a high volume of trade are classified as Major Currency Pairs and these major currency pairs are the most traded currency pairs in the FX market. Then there is Minor Currency Pairs and these are currency pairs that don't have a high trade volume turnover. When it comes to forex trading, Major Currency Pairs are more popular than Minor Currency Pairs - This is because Major Currency Pairs are more Liquid than Minor Currency Pairs.
Forex Market turnover is approximately 7.2 trillion dollars per day, 95 % of all forex trading transactions are carried out by speculators for profit. The Majority of these trade transactions is comprised of the five major Forex currencies that are comprised of:
- USD
- EUR
- GBP
- JPY
- CHF
The above forex currency symbols represent currencies of their various countries, using the 3 letter naming format is used to name forex currencies. This is the format used in Forex when trading these currencies, for those not familiar with currency symbols the above represent the following; USD - US Dollar, EUR - EURO, GBP - Great Britain Pound, JPY - Japanese Yen and CHF - Swiss Franc.
The USD is the most traded currency
USD - 85% of all daily forex market transactions
EUR - 40% of all Forex trading transactions
JPY - 20% of all Forex trading transactions
GBP - 13 % of all Forex trading transactions
CHF - 9 % of all Forex trading transactions
US Dollar or USD - the United States dollar is the main currency of the world. It is used as the standard measure of all other currencies that are transacted in the FX market. All other currencies are generally quoted in terms of US dollar.
The US dollar is a safe haven currency, because it is held as a reserve by many central banks. In times of economic recession the US dollar will strengthen due to the fact that investors buy the US dollar because of its safe haven status. On the other hand when the economies are doing well traders will go for those that are higher yielding such as the EURO, Pound, Swiss Franc and Australian Dollar.
In the forex market the dollar is traded against other major currencies, these are Euro, Japanese Yen, British Pound and Swiss Franc.
Euro or EUR - Euro has a strong international presence because it represents 17 Euro-zone member countries of the European Monetary Union. Because the Euro represents 17 economies, this makes the Euro the second most traded currency after the US dollar.
Japanese Yen or JPY - Japanese Yen is the third most transacted in the world because of its liquidity. Japanese economy is the second biggest economy after the US economy.
British Pound or GBP - Britain economy is the third largest economy after the US and the Japanese Economy. This makes the British pound liquid and it is the fourth most transacted in the forex market.
Swiss Franc or CHF - Swiss Franc is the only major of a major European country that does not belong to the European Monetary Union or G-7 countries. Although the Swiss economy is relatively small, the Swiss Franc is one of the five major currencies in the Forex Market. This is because of the strength of the Swiss banking system and the Swiss economy which makes the Swiss Franc stable with a high demand that exceeds supply.
The Canadian Dollar or CAD and the Australian Dollar or AUD are also part of the currencies traded on the market but these do not count as being part of the majors because of their illiquidity.
After classifying the forex currencies, there are 2 categories:
- Major Currency Pairs
- Currency Crosses - Minor Currency Pairs
Major Currency Pairs
Currencies are traded in pairs of two e.g. EURUSD
Major currency pairs have a combination of the USD and one other major currency (EUR, JPY, GBP, CHF).
The 4 major pairs or the big four in forex trading are:
- EURUSD
- USDJPY
- GBPUSD
- USDCHF
These are the most traded currency pairs because they have a high turnover and are the most profitable.
These are the best currency pairs for forex day trading, if you want to make the most profit it is best to trade only these four majors only.
Daily Turnover of Forex Currencies by Volumes
The USD is the most traded currency in the forex market, followed by EUR, GBP, JPY and CHF, the daily turnover volume share taken by each of these 5 currencies in terms of percent is shown below:
USD - 85 %
EUR - 40 %
JPY - 20 %
GBP - 13 %
CHF - 9 %
Since Forex trading transactions are in pairs the total will be 200 %
For example the EURUSD currency pair: EURUSD = 100 % EUR + 100 % USD
Summing up the total of the big four currency pairs= 85 + 40 + 20 + 13 + 9 = 167 % . Note these four currency pairs are made up of five individual currencies which make up the sum total of 167%. This percentage of the total forex trade turnover volume is what makes these four currency pairs to be referred to as major currency pairs or in short "majors". This lion share of the total turnover daily forex trading volume is also what makes these 4 currency pairs - the best currency pairs to trade especially among the Forex Day Traders.
Therefore volume for Major Currencies is:
Forex Major Currency Pairs = 167 % of all forex trading turnover
Other Forex Pairs Combined = 33 % of all forex trading turnover
Best Currency Pairs to Forex Trade: Because the major currencies are the most actively traded in the online forex trading market, many experienced investors only trade the major currency pairs because these are highly liquid and their price trends movement tends to be more predictable. This makes these major currencies; USD, EUR, GBP, JPY and CHF the best to analyze using forex technical analysis as they are the most liquid.
The more the liquidity, the more the volatility, volatility means a currency is likely to trend in one particular direction and when the prices are moving in a particular direction in a forex trend it is easier to make money as opposed to when prices are not moving in a particular direction - ranging forex market.
On the other hand, all the other currency pairs, also known as minor currency pairs that make 33% of all daily forex trade turnover and are said to be illiquid, meaning they do not have a lot of volatility and as such most of their price movements are choppy or range bound. These means that the minor currencies are the most hard to analyze using forex technical analysis studies because they do not show defined market movements in one particular direction (they do not move in a forex trend most of the time).
For example by just forex trading EURUSD then one will be participating on 85 + 40 = 125% of all forex trading turnover volume, which is two-thirds of all forex trade transactions. This is another reason why some forex traders just stick to forex trading the EURUSD currency pair alone.
Currency Crosses
These are the forex currency pairs that do not have USD and involve cross-currency transactions.
Example:
- EURJPY
- GBPJPY
- EURGBP
- AUDJPY
- GBPCHF
- EURCHF
- CHFJPY
To buy EURJPY you first buy EURUSD and then buy USDJPY.
This means to buy EURJPY currency pair in forex trading you will have traded two other major currency pairs. This is why the major currency pairs have large turnover forex trading volumes because forex transactions of all minor currency crosses will involve these 2 major currency pairs.
This is because in the forex market you cannot buy or sell the EUR directly for the JPY you have to convert EUR into USD then using the USD you have to buy JPY. This is why these are called crosses because of the cross forex trade transactions using USD. This is also why USD takes up 85% of all forex trade transactions, because it is the base currency of all exchange forex transactions.
To buy GBPJPY you first buy GBPUSD and then buy USDJPY
This is also why the forex trading spread of these forex currency crosses is higher than that of the major forex currency pairs, because you will be transacting two transactions simultaneously when buying or selling these forex currency crosses.
Currency crosses are also not very liquid and therefore are not highly traded by most investors & forex traders, this is why these minor forex currency pairs tend to have less predictable forex price movements because their volumes of forex trade transaction turnover is not very high.
