In the financial market, major currencies are the most widely traded and used in global finance and trade. Major currencies include the US dollar, the euro, the British pound and the Japanese yen. These currencies are global reserve currencies and are used in many international financial transactions. It is worth noting that major currencies represent more than 80% of global currency trading volume, and they are the currencies that are heavily traded in the Forex market. These currencies are usually characterized by high liquidity and reasonable volatility, which makes them a topic of interest for investors and traders alike.
Despite the importance of major currencies, China, despite being the third largest economy in the world, does not typically classify its currency as a major currency. This is partly due to the role of the Chinese government in setting exchange rates and interest rates, which it directly controls, as well as other government-imposed restrictions on the movement of capital.
Relative to the US dollar, it is considered the main foreign exchange reserve in many countries, as it constitutes a large percentage of global foreign currency reserves. This situation reflects global confidence in the economic and political stability of the United States.
It is worth noting that although major currencies are important, there are also minor currencies that are widely used in trading, such as the Swiss franc, the Australian dollar, the Canadian dollar, and the New Zealand dollar. These currencies are also an important part of the Forex market and are very popular among investors and traders.
Understanding the currency pair in the Forex market is essential to trading successfully. If you are looking at the EUR/USD currency pair, for example, this means that you are comparing the value of the euro against the US dollar.
Three sets of currency pairs
In a financial context, technical analysis and determining entry and exit points depend on understanding the currency pair. When a “EUR rises” reference is made, it should be made clear whether the EUR/USD or any other currency is being referred to.
Ultimately, distinguishing between the specific currency pair and the corresponding currency is essential to avoid confusion and to properly understand developments in Forex market and financial analysis. Clarifying the currency corresponding to aforementioned currency contributes to conveying information accurately and clearly to readers, and thus contributes to avoiding misunderstanding and improving the quality of financial and journalistic reports.
Three groups of currency pairs
Major Pairs If we use the Bank for International Settlements (BIS) report as a reference point, we can say that a “major currency pair” is one that accounts for more than 3% of daily trading volume. In that case this group will include seven pairs: EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CAD, USD/CNY, and USD/CHF.
Minor Currency Pairs: A currency pair has the status of “minor” when it includes the currency of a country with a relatively small economy or a developing financial market, whether stock or bond markets. However, a country with a “minor” currency may have a very large economy, such as China or Russia, but it still has the status of a secondary currency because that currency is not traded according to free market mechanisms. Minor currencies include some developed market currencies and also some emerging market currencies. An example of a secondary currency of a country with a developed economy is the South Korean won.
list of minor currencies also includes the Mexican peso, Chinese yuan, South Korean won, Swedish krona, Russian ruble, Norwegian krone, Hong Kong dollar, Singapore dollar and Turkish lira. Currencies are called “minor” currencies in the spot Forex market
Cross currency pairs
Retail is an uncommon word that some analysts prefer to print this description on currency pairs that include two minor currencies, such as the South African Rand/Turkish Lira. Most minor pairs account for only a very limited share of trading volumes in the Forex market. For example, EUR/TRY represents about 0.1% of trading volumes and USD/TRY accounts for 1.2%.
There are many other currencies that fall within the secondary currencies, including, but not limited to, the Polish Zloty, the Hungarian Forint, the South African Rand, and the Brazilian Real. In Poland and Hungary, expectations of both countries becoming members of the European Monetary Union have led to widespread use of the euro. Poland is expected to join in 2020
Combining a major and a minor currency in one pair does not make this pair classified as a “major” pair, as it remains classified as a minor pair.
Cross currency pairs
Traders create cross exchange rates by combining currency pairs such as EUR/USD and USD/MXN. By eliminating the duplicate currency, the trader can create a hybrid or “cross” pair such as EUR/MXN. However, these types of currency pairs only account for a very limited share of trading volumes, even though one of the main pairs is most traded currency pair, EUR/USD,
There are endless possibilities when forming cross currency pairs, but limited trading volumes for the currencies that make up pair, such as TRY/KRW (Turkish Lira vs. South Korean Won), lead to wide spreads and generally less available liquidity.
Enjoy major cross pairs such as AUD/CAD, AUD/JPY, EUR/AUD and CAD/JPY. Usually with deep liquidity and low spreads. Even in case of minor cross pairs such as EUR/PLN (Euro vs. Polish Zloty) and EUR/RUB (Euro vs. Russian Ruble) – prices can still be found under normal market conditions even in limited quantities.
