What Are Major Forex Currency Pairs?

By Steven Hatzakis Monday, December 25, 2017
A good way to start trading Forex is to start with what you know. So, it is advised to start trading with major Forex currency pairs first!

Introduction

As the name implies, the foreign exchange transactions revolve around the exchange of currencies, meaning that one currency can be converted to another type of currency with a rate called exchange rate. As currencies are transacted in pairs in the Forex market, they are commonly known as Forex currency pairs.

In order to understand currency pairs in particular, you must first get to know the basic concepts such as their notation and the specific order they appear in.

What’re Factors Affecting the Exchange Rate of a Currency Pair

Cause and Effect

Cross currency pairs can affect your trade even if you only make transactions with major currencies. When the Federal Government publish an increase in interest rates, the market would usually buy the US Dollars against other major currencies. In this situation, the pairs like USD/CHF or USD/JPY would rise in value, whereas the EUR/USD or GBP/USD would yield less.

Demand and Supply

A currency will become more available when there is an influx in sales of that currency in the foreign exchange market. But its price will soon fall if there is no demand for that specific currency to gain a constant balance in supply and demand.

Imports and Exports

When imports and exports are involved, the value of a currency can direct affect a country’s economy. It is commonly known that a weak currency is more suitable for exports, but it can cause imports more expensive, meaning that it can cause shortcomings for that country’s trade.

When Is the Right Time to Exchange Currency Pairs?

When it comes to trading currency pairs in the Forex market, you may need to pay attention to some of the following factors:

Economic Factors

Economic factors such as the nation’s GDP, cash rate, inflation or properties can influence currency pairs in the FX market.
Supply and Demand of Exports and Imports
In case there is a rise on demand for imports, you can predict the currency to strengthen in the near future. But if the demand for exports increase, it means that currency is going to fall in price sooner or later.

Economic Crisis

Needless to say, an economic crisis in any country or a bigger region can have an unfavorable effect on Forex currency pairs. For instant, the global financial crisis in 2007 – 2008 had a huge impact on currencies all over the world, including the USD.

Rise and Fall

The rise or fall in the value of any currency has a direct effect on its pairing with other currencies. For example, if you have the foresight that the US Dollar may fall in value more than the Euro in a given time period, you would gain profits by exchanging US dollars for Euros ahead of time. When you guess the US Dollar will increase and the Euro will decrease, you would want to buy the US Dollar and sell the Euro. This would be called bid and offer or sell and buy prices of a certain currency pair.


You are dealing with the bid when you sell a currency or at the ask when you buy a currency. Usually, a currency would be sold when the exchange rate is expected to go down or bought when the exchange rate is expected to rise.

Major Forex Currency Pairs

Definition

Major currency pairs are the pairs most commonly traded. All of the currency pairs are usually indicated by three letters with the currency code ISO 4217 (the International Standard for currency codes). Each currency code separated by a slash (“/”).

For example, USD/JPY is the notation of a major currency pair in which USD is the ISO code for the US Dollars, and JPY is the ISO code for the Japanese Yen quoted in the US Dollars terms. Also explained in the forex terminologies, the US Dollar is the base currency, while the Japanese Yen is the counter currency that is quoted relatively to the base currency in this situation.

Order

The forex quotation gives priority to a particular currency over other currencies that will eventually affect their position as base currency or counter currency in a currency pair. The following sequence, also known as “pecking order”, shows increasing priority of certain major currencies:
EUR > GBP > AUD > NZD > USD > CHF > JPY


Based on this order, the forex market would quote the currency pairs, for example, EUR/AUD or USD/JPY instead of AUD/EUR or JPY/USD because of the EUR’s and USD’s superiority position.

On the other hand, most minor currencies are quoted as the counter currency with major currencies as the base currency in currency pairs. Examples are USD/HKD for the US Dollar/Hong Kong Dollar exchange rate or USD/KRW for the US Dollar/South Korean Won exchange rate.

Most Active Forex Currency Pairs

The Forex market is the world’s most liquid market, and it is safe to assume that the bigger the trade value between two countries, the more liquid the currency of these countries will be.

There is no official list showing the best currency pairs or the major currency pairs are, but these are the most well-known, most active currency pairs in the Forex market:
  • 1.EUR/USD 
  • 2.AUD/USD 
  • 3.GBP/USD 
  • 4.USD/CAD 
  • 5.USD/CHF 
  • 6.USD/JPY 
As you can see, the two currencies from each of these Forex currency pairs are all from the world’s most enormous economies with huge amounts of goods and services, which is why their currencies are being traded so profusely. Politics and economic stability also play an important part in the popularity of these currencies.

Especially, USD is the selection of many central banks all over the worlds, not mention to many key commodities (for example, oil) are priced in USD. Only be defeated by the USD, the Euro is the second most popularly-held currency by governments and institutions.

Benefits of Trading Major Currency Pairs

The great liquidity of the major currency pairs gives us many benefits. The more liquid currency pairs can be traded on tighter spreads, meaning that they have little differences in price. The liquidity of the Forex market together with the major currency pairs can boost the ease of transactions, maintaining smooth prices.

A good way to start trading Forex is to start with what you know. So, it is advised to start trading with major currency pairs first because of their tighter dealing spreads and more economic news, analysis in the Forex market.

Conclusion

Without much said, you can also trade currency pairs that aren’t the majors if you have insight knowledge and familiarity in a certain economy and its currency. Predictions can be rather difficult, and it is not always recommended to let the foreign exchange software do all the work for you.
Hopefully, you now have the deep insight into major Forex currency pairs.