Advanced Forex Blog

The Difference Between Trading Various Types of Currency Pairs

December 27, 2020 | 12:56 pm | Advanced Forex Blog
December 27, 2020 | 12:56 pm
Advanced Forex Blog
The Difference Between Trading Various Types of Currency Pairs

Most Common Currency Types in the Forex Market

Various Types of Currency Pairs – The sheer size of the global forex market is something to behold, with this entity said to be worth a staggering $1.934 quadrillion. This is more than 2.5x the size of the world’s GDP, while it continues to grow incrementally on an annual basis.

At the heart of this market’s appeal is the sheer range of currency pairs available, both in terms of their number and the diversity of assets traded in the marketplace.

In this post, we’ll look at some of the most common currency types in the forex market, while asking what each category offers in terms of risk, reward, and suitability.

This article is an educational guest post

 

Major Currency Pairs

As the name suggests, major currency pairings are the most popular amongst traders, even though they describe just four assets in the form of the EUR/USD, USD/JPY, GBP/USD, USD/CHF.

These are the four most traded currency pairings on the forex market, with the EUR/USD the single most dominant and currently considered to account for 20% of all trades conducted on a daily basis.

But what are these currencies classified in the way that they are? Well, major currencies tend to be widely used across the globe, while they regularly showcase predictable behavior and price movements based on different trading volumes.

It is also important to note that major currencies boast huge strategic importance for brokers, as they provide them with the largest possible source of revenue on an annual basis. Here are some of the most popular major currency pairs.

EUR/USD Euro/US dollar
USD/JPY US dollar/Japanese yen
GBP/USD British pound/US dollar
USD/CHF US dollar/Swiss franc
USD/CAD US dollar/Canadian dollar
AUD/USD Australian dollar/US dollar
NZD/USD New Zealand dollar/US dollar

 

Minor Currency Pairs

The US Dollar, also known as the ’greenback’, is used in almost 73% of all trades worldwide.

This dominance of the currency market has resulted in any trades without the Dollar involved being known as minor currency pairs. Here are some of the most common minor currency pairs:

EUR/GBP Euro/British pound
EUR/AUD Euro/Australian dollar
GBP/JPY British pound/Japanese yen
CHF/JPY Swiss franc/Japanese yen
NZD/JPY  New Zealand dollar/Japanese yen
GBP/CAD British pound/Canadian dollar

 

Exotic Currency Pairs

At the other end of the forex spectrum sits exotic currency pairs, which essentially include a major currency and one that represents a developing country and economy.

For example, you may see the USD paired with currencies such as the Turkish Lira (TRY) or the Thai Baht (THB), creating an exotic pairing that provides an appealing balance between risk and reward from an investor perspective.

As you can imagine, exotic currency markets tend to be more volatile and less liquid than major pairings, with the greater risks incurred by emerging market assets offset by the potential for more significant gains over time.

The good news is that exotic currency pairs are now more accessible than ever before, thanks to the widespread use of trading apps such as the Metatrader 4 for Thai trades. With this type of mobile app, you can also profit from volatile exotic price movements in real-time, creating huge margins and financial opportunities in the process. Here are some of the exotic currency pairs you may wish to trade:

EUR/TRY Euro/Turkish lira
USD/HKD US dollar/Hong Kong dollar
USD/THB US dollar/Thai Baht
NZD/SGD New Zealand dollar/Singapore dollar
GBP/ZAR British pound/South African rand
AUD/MXN Australian dollar/Mexican peso

 

Commodity Pairs

We close with commodity currency pairs, which tread the middle ground between the first two options and tend to reflect developing economies across the globe.

More specifically, commodity pairs represent countries that boast large amounts of commodity reserves, such as Australia, Canada, Russia, and New Zealand.

With this in mind, the most prominent commodity pairs include the USD/CAD and AUD/NZD, with these entities incredibly sensitive to the changing price of commodities and volatile entities such as oil.

So, while commodity-based markets and assets tend to be incredibly liquid and popular amongst investors (thanks to the large volume of buyers and sellers active at any given time), you may need to factor in the price performance of commodities such as oil before making moves in this space.

Here are some of the most popular commodity currency pairs:

USD/CAD US dollar/Canadian dollar
AUD/NZD Australian dollar/New Zealand dollar
USD/RUB US dollar/Russian ruble
AUD/USD Australian dollar/US dollar

 

Various Types of Currency Pairs Summary

There are many categories given to currencies and their respective pairs, whether from the popularity among traders, or the perceived risk involved when trading. However, getting to know the different types of currencies and how they trade on the markets may help you to become a more well-rounded foreign exchange trader. Also, opening more opportunities for new profit channels and more experience trading with international currencies.

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