Major Currency Pairs: A Guide to the Most Traded Forex Pairs | LiteFinance (2024)

A currency pair on the trading market is the main tool for forming an offer to buy or sell a currency. A currency pair consists of two currencies: the main currency and the quote currency. The most traded currency pairs are those that contain the dollar, as it is the largest economy in the world. Examples of such pairs are EUR/USD, GBR/USD, JPY/USD and so on. Of course, there are currency pairs that do not contain the dollar, they usually have smaller market volumes, and nevertheless, they are no worse for it. Pairs with a large market volume and a small market volume are called "major" and "minor". It is critically important for a trader to understand what the difference between these pairs is, and that’s what we will talk about in this article.

Major takeaways

What Are the Forex Major Pairs?

Imagine a duo of global currencies, kind of like a dance partnership. This is what we call a 'currency pair'. You're probably already familiar with the popular kids on the block; those that usually have the US dollar and euro dollar as their dance partner. But did you know, there are also some less famous, but equally intriguing, currency pairs? These tend to shy away from the limelight and don't necessarily involve the US dollar.

These understated pairs are often referred to as 'cross' or 'minor' pairs. Although they're not the talk of the town, they hold a great potential for trading. It's just that they might not be on everyone's radar as they're not in the usual trading limelight. But hey, don't let that dissuade you!

To give you an idea, pairs like EUR/CHF (Euro and Swiss Franc), EUR/NOK (Euro and Norwegian Krone), and GBP/EUR (British Pound and Euro) are examples of these minor forex pairs. Notice something? Yep, they do not have the mighty US dollar in their mix. They might be less frequently used as trading instruments, but remember, in the world of forex traders, it's often the hidden gems that shine the brightest!

List of the Major Currency Pairs

Seven the most popular currency pairs:

1. EUR/USD;

2. USD/JPY;

3. GBP/USD;

4. USD/CHF;

5. AUD/USD;

6. USD/CAD;

7. NZD/USD.

The last three pairs from the list also function as commodity pairs, so sometimes they are excluded from the list of currency pairs.

Understanding the Major Currency Pairs

When you make a trade, you are simultaneously buying one currency and selling another. You buy the currency that is the first in the pair, it is also the base currency, and you sell the one that is the second in the pair - this is the quote currency.

The price of a currency, as well as the actual profitability of trading at one time or another, depends on the state of the economy of the currency country. It is of great importance what the economy of a particular country is based on. If the economy is mainly based on oil, then analyzing the oil market, you can see how the currency of this country behaves. This is a simple example, of course it is also necessary to take into account GDP, interest rates, economic growth (or recession). All these factors affect the price of a currency relative to other currencies.

If you have ever studied the forex market, then you have probably already met the term "major currency pairs". This term refers to several pairs that account for about 75% of forex trading volumes. The fact is that these pairs are so popular because of the developed and stable economies of the countries to which they belong. As you might have guessed, among these currency pairs, there will be such currencies as USD, EUR, JPY, GBP, CHF. But there are only 4 main currency pairs: EUR/USD, USD/JPY, GBP/USD, and USD/CHF.

Why Traders Trade the Major Currency Pairs

The answer is simple: major pairs have a smaller spread, they attract more traders and therefore increase trading volumes. When trading volumes increase, it is easier to enter and exit the market. Major pairs are more stable and liquid currency pairs.

In this case, smaller pairs are less attractive because small trading volumes increase the likelihood of slippage. As each transaction can have a large impact on the exchange rate, there is risk involved.

The Four Traditional Major Pairs

Different experts have different opinions. Some believe that there are only four major pairs.

EUR/USD

To minimise risk when trading the EUR/USD pair, wait for the European and American markets to open and settle before trading. For day traders, the most efficient and active market is between 13:00 and 16:00 GMT.

USD/JPY

The perfect time for trading is from 12pm to 8pm GMT during the American trading session or from 11pm to 8am during the Asian trading session.

GBP/USD

It's better to do international trade not from 6 am to 4 pm GMT. For maximum efficiency and potential profits, the sweet spots are between 8 am to 10 am and from noon to 3 pm GMT.

USD/CHF

The best time trade is between 2 am and 5 am, and between 8:30 am to 10 am. These periods align with the economic release schedules of both countries, making them suitable for active trading.

Commodity Currencies

Commodity currencies are unique in Forex trading because their prices are closely tied to global commodity prices. This happens when a country is heavily dependent on the export of certain commodities, making its currency more sensitive to any price changes in the commodity markets.

Commonly traded currencies include the New Zealand dollar, Australian dollar, Canadian dollar, Norwegian krone, South African rand, Brazilian real, Russian ruble and Chilean peso.

AUD/USD

In order to optimise your fx trading efforts, it is advisable to trade this different currency and foreign exchange market between the hours of 19:00 and 4:30 GMT.

USD/CAD

When it comes to trading these currencies, it's important to note that the entire North American trading session begins at 12pm GMT and gracefully bows out at 8pm GMT.

NZD/USD

The best time to trade this pair is from midnight to 2:00am, 6:00am to 8:00am and noon to 5:00pm GMT.

Cross Currencies

As mentioned above, cross-currency and trading and cross currency pairs often have interest rates that do not include the dollar. Most cross currency trading and pairs may include the Euro or the Japanese Yen.

GBP/EUR

The best time to trade this pair is from 7am to 4pm GMT.

EUR/CHF

This pair is heavily influenced by market announcements, but the best time to trade is from 8am to 4pm GMT.

EUR/JPY

The ideal time to trade this pair is from 13:30 to 20:30 GMT.

How are the prices of the major pairs determined?

One of the basic concepts to grasp in this area is that currency pair prices are categorised into two distinct values - the bid (or buy) price and the ask (or sell) price. These values serve as the basis for determining the overall value of a currency pair.

More specifically, the strength or weakness of the base currency in relation to the cross currency is the primary determinant of the value of the currency pair. It's a complex but fascinating web of financial interactions that determines the ebb and flow of the market.

How do I trade the major forex pairs?

Trading currency pairs can be a complicated and nuanced process, but we're here to make it a breeze.

If you're ready to start trading a particular pair, follow these simple steps to get started:

First, open an account with us and deposit the funds required to start trading.

Next, select the currency pair you'd like to learn more about.

Conduct a thorough analysis of both the technical and fundamental aspects of the currency pair to gain meaningful insights.

Select the ideal forex strategy for you and carefully evaluate the risks involved. Once you have a clear plan of attack, it's time to make your move and open a buy or sell position in the market.

How is a currency pair calculated?

Let's take the GBP/JPY currency pair for example. Its current rate is 137.02, which means that one British pound is worth 137.02 Japanese yen.

Now let's examine the key parameters that every trader needs to understand when trading any major currency pair.

Pip price

In the Forex market, a pip is the minimum price difference for a two traded currency pair each, usually limited to ten thousandths of a unit. For example, for a trader trading 1 lot of GBP/JPY, the cost per pip is $0.8392.

The value of the pip is derived by dividing 0.0001 by the current rate (1.3702) and multiplying by the volume of the trade (100,000 units). So 0.0001/1.3702*100000= $0.8392.

Collateral and Leverage

Leverage is an essential tool that allows traders to increase their trading volume by borrowing funds from brokers, while collateral refers to the minimum amount required to maintain a position.

Suppose a trader wants to initiate a 1 lot GBP/JPY trade. In this case, they'll need around $137,020 in collateral. However, minimising the margin by increasing the leverage ratio to 1:200 could reduce the required collateral to just $685.1.

Position Size

Position size measures the volume of a trade based on the number of lots purchased. One lot is equal to 100,000 units of the base currency used. The basic rule of thumb is to risk no more than 2% of the account equity.

For example, a trader with an account equity of $10,000 may wish to risk 100 pips on the GBP/JPY. Therefore, the maximum position size allowed in this context would be 0.15 lots.

Forex market trends and trending currency pairs

First of all, let's have a clear understanding of what a trend is. A forex trend is a consistent direction in the price of an asset over a period of time, characterised by a clear intensity and frequent updates of local highs and lows.

Let's look at the three main types of trends that occur in the market:

An uptrend, also known as a bullish trend, is characterised by rising price trends and continues as each successive high outperforms its predecessor.

A downtrend, or bearish trend, is a falling price with repeated lows. Prices fall below previous lows when an asset is in a downtrend.

A sideways or flat trend occurs when the price of an asset is not moving in a definite direction. It is the most common market condition observed in Forex trading.

It's important to note that a trend will continue until there is a signal to end it. For example, in a bullish market, the price may stop rising above the previous high, signalling a possible bearish trend.

EUR/USD

The most popular and quite volatile pair in Forex. The Fed and ECB minutes, which are publicly available, help to monitor the exchange rate of these currencies.

USD/CAD

This pair is also considered to be quite liquid and volatile (on average 80-100 pips). However, the behaviour of the CAD can be easily predicted based on data from the precious metals and oil markets, as this is the strongest side of the Canadian economy.

AUD/USD

The AUD/USD has powerful, enduring trends. Australia's abundant mineral and agricultural exports influence its rate, while the economies of China and Japan also influence this pair.

GBP/JPY

Traders like GBP/JPY, although its average volatility of 110 pips and complexity may deter amateurs. Economic conditions in the UK and EU, Japan's monetary policy and interest rate differentials make GBP/JPY suitable for the carry trade strategy. Data on GDP, unemployment, inflation and industrial production are influential.

Example of a major pair price quote and fluctuation

Let's consider the USD/JPY exchange rate, which may currently be at, say, 139, meaning that one US dollar buys 139 yen. If the rate moves to 140.5, it means that the US dollar has appreciated and the same amount of dollars will buy more yen. Conversely, if the rate moves to 137, it will cost more US dollars to buy one yen, meaning that the US dollar has weakened or the yen has appreciated.

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