What are Cross Currency Pairs? - What are Minor Currency Pairs?
Currency Crosses
Cross currency pairs 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 currency pairs. This is why the majors have large turnover volumes because all minors will involve these 2 majors.
This is because in the 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 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 & therefore are not highly traded by most investors, this is why these Forex currencies tend to have less predictable movements because their volumes of transaction turnover is not very high.
Daily Trade Transactions 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:
Major Currency Pairs
USD - 85%
EUR - 40%
JPY - 20%
GBP - 13 %
CHF - 9 %
Since 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 volume is also what makes these 4 the best currency pairs to trade especially among the Day Traders.
Therefore volume for Major currency pairs and Minor currency cross pairs is:
Forex Major Currency Pairs = 167 % of all trade transaction turnover in the market.
Other Minor Currency Pairs Combined = 33 % of all trade transaction turnover in the market.
