Major Currency Pairs Traded in The Forex Market and Minor/Crosses
Foreign Exchange Market turnover is approximately 5.2 trillion dollars per day, 95 % of all transactions are carried out by speculators for profit. The Majority of these transactions is comprised of the five major Forex currencies that are comprised of:
The above symbols represent currencies of their various countries, the 3 letter naming format is used. This is the format used in Forex when trading these currencies, for those not familiar with currency symbols the above represent the following; USD - US Dollar, EUR - EURO, GBP - Great Britain Pound, JPY - Japanese Yen and CHF - Swiss Franc.
The USD is the most traded pair
USD - 85% of all daily Forex market 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 because of its safe haven status. 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 Foreign Exchange 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 currencies, there are 2 categories:
- 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 4 major pairs or the big four in Forex are:
These are the the most traded because they have a high turnover and are the most profitable.
These are the best pairs for day trading, if you want to make the most profit it is best to trade only these four majors only.
Daily Turnover of Currencies by Volumes
The USD is the most traded, followed by EUR, GBP, JPY and CHF, the daily turnover volume share taken by each of these 5 in terms of percent is shown below:
USD - 85%
EUR - 40%
JPY - 20%
GBP -13 %
CHF - 9 %
Since Forex transactions are in pairs the total will be 200 %
For example the EURUSD pair: EURUSD = 100% EUR + 100% USD
Summing up the total of the big four 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 major pairs or in short "majors". This lion share of the total turnover daily trading volume is also what makes these 4 the best currency pairs to trade especially among the Day Traders.
Therefore volume for Majors is:
Forex Major Pairs = 167 % of all turnover
Other Forex Pairs Combined = 33 % of all turnover
Best Pairs to Trade: Because the majors are the most actively traded, many experienced investors only trade the majors because these are highly liquid and their movement tends to be more predictable. This makes these majors; USD, EUR, GBP, JPY and CHF the best to analyze using technical analysis as they are the most liquid.
The more the liquidity, the more the volatility, volatility means a currency is likely to trend in one particular direction and when the prices are moving in a particular direction it is easier to make money as opposed to when prices are not moving in a particular direction - ranging market.
On the other hand, all the other other pairs, also known as minor currency pairs that make 33% of all daily turnover and are said to be illiquid, meaning they do not have a lot of volatility and as such most of their price movements are choppy or range bound. These means that the minors are the most hard to analyze using technical analysis studies because they do not show defined market movements in one particular direction (they do not move in a trend).
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 alone.
These are the Forex pairs that do not have USD and involve cross-currency transactions.
To buy EURJPY you first buy EURUSD and then buy USDJPY.
This means to buy EURJPY you will have traded two other major currency pairs. This is why the majors 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 currency of all exchange foreign 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 FX currencies tend to have less predictable movements because their volumes of transaction turnover is not very high.