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Major Currency Pairs Traded in The Forex Market and Minor/Crosses

Forex turnover is approximately 7.2 trillion dollars per day, 95 % of all transactions are carried out by speculators for profit. The Majority of these Forex trades is comprised of the five major currencies that are comprised of

  • USD
  • EUR
  • GBP
  • JPY
  • CHF

 

The USD is the most traded pair

USD - 85% of all transactions

EUR - 40% of all

JPY - 20% of all

GBP -13 % of all

CHF - 9 % of all


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 foreign exchange market. All others 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 dollar will strengthen due to the fact that investors buy the dollar as a safe haven. On the other hand when the economies are doing well people will go for those that are higher yielding such as the EURO, Pound, Swiss Franc and Australian Dollar.

 

In the foreign exchange 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 transacted 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 above currencies, we then classify them into 2 categories:

  • Major pairs
  • Crosses

 

Major Pairs

Currencies are traded in pairs of two e.g. EURUSD


Majors have a combination of the USD and one other major(EUR, JPY, GBP, CHF).


The majors or the big four in Forex are:

  • EURUSD
  • USDJPY
  • GBPUSD
  • USDCHF

 

These are the most traded because they have a high turnover and are the most profitable.

 

If you want to make the most profit it is best to transact these four only.

The USD is the most traded pair:

USD - 85%

EUR - 40%

JPY - 20%

GBP -13 %

CHF - 9 %


Since transactions are in pairs the total will be 200 %


E.g. EURUSD =100% EUR +100% USD

 

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Summing up the total of the big four currency pairs= 85 + 40 + 20 + 13 + 9 = 167 % . Note these four are made up of five individual currencies which make up the sum total of 167%. This percentage of the total turnover volume is what makes these four pairs to be referred to as majors.


Therefore volume for Majors is:

Major pairs = 167 % of all turnover

Others = 33 % of all turnover


Because the majors are highly traded many experienced investors only transact the majors because these are highly liquid their movement tends to be more predictable, this makes these majors the best to analyze using technical analysis.


For Example by just trading EURUSD then one will be participating on 85 + 40 = 125% of all turnover volume, which is two-thirds of all transactions. This is another reason why some just stick to the EURUSD pair alone.


Currency Crosses

These are the 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 you will have traded two other major pairs. This is why major pairs have large turnover volumes because all minors will involve these 2 majors.


This is because in the foreign exchange 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 transactions using USD. This is also why USD takes up 85% of all transactions, because it is the base of all exchange transactions.

 

To buy GBPJPY you first buy GBPUSD and then buy USDJPY


This is also why the spread of these crosses is higher than that of the major pairs, because you will be transacting two transactions simultaneously when buying or selling these crosses.

 

Crosses are also not very liquid and therefore are not highly traded by most investors, this is why these currencies tend to have less predictable movements because their volumes of transaction turnover is not very high.

 

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