The 4 Types of Forex Currency Pairs
You may have heard traders discussing the ‘majors’ or maybe even saw someone talk about shorting an ‘exotic’ forex currency pair. No they weren’t talking about a soldier trading from an exotic beach while sunbathing naked (zing!) on the sand, they were actually talking about the different types of forex currency pairs that are available!
The Majors are typically the most traded currencies, paired with the USD, although some traders may refer to any forex currency pair featuring the USD as one of the majors. The majors are the most actively traded forex pairs which means they most liquid. This increased liquidity means that forex brokers such as Vantage can offer tighter spreads between the bid and ask price on the majors. Here are the average RAW ECN spreads to look out for:
EUR/USD – 0.1 pips.
USD/JPY – 0.5 pips.
GBP/USD – 0.6 pips.
AUD/USD – 0.4 pips.
The Minors are normally referring to any of the remaining, non USD forex currency pairs. These slightly less popular pairs often experience more wild swings in both directions due to less liquidity in the market. This also means that their spreads are often wider than those of the majors. Here are the average RAW ECN spreads to look out for:
EUR/JPY – 2.1 pips.
EUR/GBP – 3.5 pips.
GBP/CHF – 3.3 pips.
AUD/NZD – 1.4 pips.
What about The Currency Crosses? Once again, the forex currency crosses are just another example of the minors where USD is no longer required to complete the trade. Historically you see, anyone who needed to trade one currency for another would first have to convert their original sum into USD. The currency crosses were first developed to bypass the step of first having to go to USD. While that sounds normal today, at the time this was ground breaking in its business functionality. Examples of a currency cross with RAW ECN spreads would be:
GBP/JPY – 3.1 pips.
EUR/AUD – 2.7 pips.
And finally, sometimes you may also see some of the minors referred to as The Exotics. This just simply means that the currency pair is something that is rarely traded or spoken about in mainstream financial circles. An example of some of the forex currency pairs that could be considered as exotics with RAW ECN spreads are here:
The characteristics of both majors and minors are different and the personalities of the currency pairs that you are trading have to be taken into account when you are determining the pairs on which to employ your trading strategy on.
Maybe the wider spreads on GBP/CHF might prohibit you from effectively scalping the pair? But at the same time, maybe the big moves might be much more effective for you as a swing trader? These are all things to consider when building your trading plan and deciding on which forex currency pairs to trade.
Test the 45 forex currency pairs that Vantage offers on a free MT4 demo account and test your trading strategy on different pairs.