- 1 Major currency pairs – Everything you should know
- 2 Top Major currency pairs
- 3 List of Major currency pairs – Liquidity and volatility
- 4 Commodity currency pairs – Best major currency definition
- 5 Advantages of Major Forex pairs explained
- 6 Understanding Major Forex pairs – Disadvantages
- 7 Why trade Major Forex pairs?
- 8 Final Thoughts on Major pairs in Forex
- 9 Frequently Asked Questions on top Major currency pairs
Major currency pairs are the most popular and actively traded currencies in Forex. The four major currency pairs in Forex are EUR/USD, USD/JPY, GBP/USD, and USD/CHF.
Other than being the most traded currency pairs, people frequently use them for financial transactions. Because of this, Major currencies have a very important value in Forex trading. According to many analysts, Major currencies are what drive the Forex market as a whole.
Apart from the four Major pairs, some people also regard USD/CAD, AUD/USD, and NZD/USD as Major currency pairs. However, in most cases, they are called “commodity pairs”, because of their huge dependence on commodity prices.
Because of this, understanding Major currency pairs is very important for beginner traders. So, let’s dive deep into Major currency pairs in Forex and learn how to trade them.
Major currency pairs – Everything you should know
Out of the seven most traded currencies in the market, five are from Major currency pairs: US dollar, euro, Japanese yen, British pound, and Swiss franc. The EUR/USD is the world’s most traded currency pair, and it represents more than 20% of all Forex transactions happening in the market.
Then, in the second place is the USD/JPY, however, the trading volume of this currency pair is lower. GBP/USD and the USD/CHF are also among the most traded Forex trading Major currency pairs, although their share of the global Forex market is not as big either.
A very interesting fact about Forex Major currency pairs is that in many cases, because they are commodity-based, trading volumes of the USD/CAD, AUD/USD, and NZD/USD often exceed the USD/CHF and GBP/USD. This happens because prices of commodities have a huge impact on these currency pairs, as a result, many traders like to use them.
The currencies of Major pairs are free-floating currencies. It means that in most cases, their price is determined by supply and demand. However, in some cases, Central Banks do step in to control the prices, but this happens only when it is necessary to prevent drastic price movements that could cause economic harm.
Top Major currency pairs
As we have already said, the top traded Major currency pair in Forex, by far, is EUR/USD. The EUR/USD is a currency pair of the United States dollar vs the Euro.
The best part of trading EUR/USD is that it is a highly-liquid Forex pair, which leads to tighter spreads than other pairs. It also is not as volatile as other currency pairs. The average daily trading volume of EUR/USD is about 575 billion US dollars, which speaks of the popularity of this pair.
Another currency pair among the best Forex Major pairs to trade is the USD/JPY. It is a combination of the US dollar and the Japanese yen. It stands as one of the most popular Forex pairs in the world. One of the major reasons for it is the prominence of JPY in Asia, and USD in the world market.
It’s known for high liquidity, which means that traders can buy and sell the currency pair in very large volumes, without the price of it fluctuating too much in its exchange rate. It also has one of the tightest spreads in the Forex market, which is a great thing, because it reduces the costs of trading.
List of Major currency pairs – Liquidity and volatility
In Forex, you will many times hear people saying that Major currencies have more liquidity, but what does it mean? Understanding the meaning of it is not actually that hard. Simply put, liquidity is often used to refer to the activity of the market.
It shows how frequently traders are buying and selling a certain asset, it also indicates the total volume of currencies individuals may be trading. The Forex market, in general, is highly liquid, because it is open 24 hours a day. The most liquid currency pairs, as we have already said, are the Major currency pairs, because they are traded the most.
There is also another term that you will hear while trading Major Forex pairs – volatility. Major Forex currency pairs are known for low volatility, which means that the price of them is not changing as quickly and drastically as the prices of Exotic and Cross currency pairs.
Volatility is a term that describes the drastic changes that can happen in the prices of a certain asset, in this case, currency pair. Although Major currency pairs are not known for their high volatility, Exotic currency pairs tend to be changing more frequently.
Among the most volatile currency pairs are AUD/JPY, AUD/USD, AUD/GBP, and many others. Major currency pairs, as we have already said, have much lower volatility than others.
Commodity currency pairs – Best major currency definition
As we have already mentioned before, there are three currency pairs called commodity pairs but are also regarded as part of major trading pairs Forex. Commodity currency pairs are those that are from economies that largely depend on commodity reserves.
However, USD/CAD, AUD/USD, and NZD/USD are sometimes referred to as Major currency pairs, because of their high trading volume. They also behave much like major currency pairs in terms of liquidity and volatility.
Advantages of Major Forex pairs explained
The major advantage of trading Major currency pairs is their popularity. Because they play such a huge role in the Forex market, you can very easily find needed information about them. There also are many economic updates regarding Major pairs published by leading companies on a daily basis, which makes trading Major currencies a bit easier.
Also, as we have already said, they are known for their liquidity. This means that you can easily trade huge amounts of it, and there are millions of people who are trading them. Also, Major currency pairs can be traded 24 hours a day, creating a lot of opportunities for traders.
The reason for it is the geography of the earth – when one market closes, another one opens, giving traders access to Major currency pairs.
Another huge advantage of Major currency pairs is the low spreads. Many times, Forex traders, especially those who are using short-term trading strategies, (e.g. scalping and day trading) have to pay a certain amount of money in spreads.
Those who are using Major pairs are paying much less in spreads. This happens because there are millions of people who are trading these currency pairs. Also, because of the low volatility, predicting price movements of Major pairs gets a little easier.
Understanding Major Forex pairs – Disadvantages
In Forex, everything has two sides. Major currency pairs are not an exception either. Although it can be beneficial to trade them, it takes a lot of time and a significant amount of work as traders will have to constantly monitor news developments, economic announcements, forecasts, and different types of data.
All of these make it a little harder for traders to follow ongoing events and make quick decisions. Major currency pairs traders have to follow these types of news forecasts while also keeping an eye on the fluctuations within the currency pair that are trading. Because of this, one of the major cons of trading Major currency pairs is that there is a lot of time required to do good research.
Why trade Major Forex pairs?
The major pairs have a lot of trading volume, therefore, it attracts even more traders. High trading volume also ensures that traders are able to enter and exit the market very easily, with larger position sizes.
In other currency pairs, such as Exotics and Cross currency pairs, traders have more difficulty selling or buying large positions without causing the price to move significantly. Another reason why so many people use Major pairs for trading is that there always are a lot of people who are willing to buy and sell the currency pair at any given time.
Final Thoughts on Major pairs in Forex
There are four major currency pairs available in Forex trading. They are EUR/USD, USD/JPY, GBP/USD, and USD/CHF. These currency pairs are very different from one another, but all Forex major pairs have some things in common – high liquidity, low volatility, and tight spreads.
All of these make Major pairs a very good trading asset for many. Forex trading is the most liquid market in the financial world, however, there are just a handful of currencies that make up the vast majority of the trading volume of Forex. EUR/USD is the most liquid currency pair in the Forex market. It means that most of the people in the market are trading EUR/USD.
Among some of the best Major currency pairs is also USD/JPY, because of the economical importance that the USA and Japan have in financial markets.