Currency Pairs — Majors, Minors, and Exotics

Module 4: Forex Trading

2.1

Not all currencies are created equal

There are over 180 currencies in the world. From the US dollar and the euro to the Vietnamese dong and the Zambian kwacha. In theory, any two of these currencies could be paired and traded. In practice, the forex market concentrates its activity in a relatively small number of pairs, and understanding which pairs are most traded and why shapes everything about how you approach the market.

Currency pairs are divided into three broad categories based on their liquidity, their trading volume, and how widely they are followed. These categories are majors, minors, and exotics. Each has a distinct personality, a distinct risk profile, and a distinct set of considerations for the trader.

2.2

The major pairs , where most of the world's forex trading happens

The major currency pairs are the seven most heavily traded pairs in the world. They all share one characteristic: they all include the US dollar on one side of the pair. Over 89% of all forex transactions involve the US dollar on at least one side, according to the 2025 BIS Triennial Survey.

The Seven Major Currency Pairs

Pair	Nickname	Base Currency	Key Driver	Typical Spread
EUR/USD	The Euro	Euro	ECB vs Fed rate differential	0.5 to 1 pip
GBP/USD	Cable	British Pound	Bank of England policy and UK data	1 to 1.5 pips
USD/JPY	The Yen	US Dollar	Interest rate differentials and BOJ policy	0.5 to 1 pip
USD/CHF	The Swissie	US Dollar	Safe haven flows and SNB policy	1 to 2 pips
AUD/USD	The Aussie	Australian Dollar	Commodity prices and China growth	1 to 1.5 pips
USD/CAD	The Loonie	US Dollar	Oil prices and Canadian economic data	1 to 2 pips
NZD/USD	The Kiwi	New Zealand Dollar	Agricultural exports and RBNZ policy	1.5 to 2 pips

2.3

The minor pairs , removing the dollar

Minor pairs, also called cross pairs, are currency pairs that do not include the US dollar. They are formed from combinations of the major currencies. EUR/GBP, EUR/JPY, GBP/JPY, EUR/CHF, AUD/JPY, and GBP/AUD are among the most commonly traded.

Minor pairs are generally less liquid than major pairs. Their spreads are wider. Their price movements can sometimes be more erratic because they are effectively derived from two separate dollar pairs moving simultaneously.

GBP/JPY, nicknamed the Dragon by traders, is particularly known for its volatility. It combines the movements of GBP/USD and USD/JPY, which means it can produce large, fast-moving price swings. Experienced traders love it for its range. New traders can get hurt badly by it for exactly the same reason.

2.4

Exotic pairs , high reward, high risk, high cost

Exotic pairs combine a major currency with the currency of a smaller or emerging market economy. USD/TRY is the dollar against the Turkish lira. USD/ZAR is the dollar against the South African rand. USD/MXN is the dollar against the Mexican peso.

Exotic pairs can offer large price movements and therefore the potential for significant profits. But they come with significant risks that make them unsuitable for most new traders.

Why Exotic Pairs Are Not for New Traders

Spreads on exotic pairs can be 20 to 50 pips or more, compared to 0.5 to 1 pip on EUR/USD. That is a massive cost to overcome before a trade becomes profitable.
Liquidity is much thinner. Fewer buyers and sellers means slippage is higher and price can move violently on relatively small orders.
Political and economic instability in the smaller economy can cause sudden extreme moves that dwarf anything in a major pair.
There is no edge in trading exotic pairs simply because they are more exotic. Major pairs provide more than enough opportunity.

2.5

Reading a currency pair , which way is it quoted?

Every currency pair has a base currency and a quote currency. The base currency is the first one listed. The quote currency is the second.

In EUR/USD, the euro is the base currency and the dollar is the quote currency. The price tells you how many dollars one euro is worth. If EUR/USD is trading at 1.0850, one euro buys 1.0850 dollars.

When EUR/USD rises from 1.0850 to 1.1000, the euro has strengthened against the dollar. One euro now buys more dollars than it did before.

In USD/JPY, the dollar is the base currency and the yen is the quote currency. If USD/JPY is trading at 150.00, one dollar buys 150 yen. When USD/JPY rises, the dollar is strengthening. When it falls, the dollar is weakening.

The direction of a move in a currency pair always tells you something specific about the relative strength of the two currencies involved. Understanding which is the base and which is the quote is fundamental to reading and trading forex correctly.

Key Takeaways

Currency pairs are divided into majors, minors, and exotics based on their liquidity, trading volume, and whether they include the US dollar.

The seven major pairs all include the US dollar. EUR/USD is the most traded pair in the world. The euro featured on one side of roughly 28.9% of all forex trades, per the 2025 BIS Triennial Survey.

Minor pairs do not include the dollar and tend to be less liquid with wider spreads. They require tracking two sets of economic conditions simultaneously.

Exotic pairs combine a major currency with an emerging market currency. They offer large moves but come with very wide spreads, thin liquidity, and extreme volatility risk.

In any currency pair the base currency is the first listed. The price tells you how many units of the quote currency one unit of the base currency buys.

Chapter Quiz

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