A forex trade involves the exchange of different currencies. The intention of the trader is to buy one currency with another, wait for the exchange rate to move in their favour, then re-exchange the currencies at a profit. The process is very similar to buying one currency with another when you go on vacation, but for the sake of making money rather than convenience.
The currencies involved in a forex exchange are known as the pair. This term is used because all forex trades involve two currencies, but never more than that.
There are three different types of forex pairs: major, minor and exotic. The designation each pair receives depends on the currencies involved. Specifically, it depends on whether or not the US dollar is involved in the exchange, and which other currency it’s being partnered with.
Before defining minor forex pairs, let’s examine the definitions for major and exotic pairs. We’ve examined these pairs before, so you can see more expansive explanations for each term by clicking the links below.
What is a major forex pair: There are seven major forex pairs. They feature the US dollar as one currency, and a currency from a stable, developed country as the second half of the pair. Major pairs account for 80% of all forex trades made worldwide. They tend to be the most secure variety of forex trade, and usually offer the lowest spreads. They are available from almost every forex broker on the web.
What is an exotic forex pair: Exotic pairs are on the opposite end of the trading spectrum from major pairs. They do not include the US dollar, and feature at least one currency from an economically vulnerable or developing country. Typically, exotic pairs are more volatile than major pairs, and have larger spreads. They are much less popular and are not available through all online forex brokers.
A minor forex pair is something of a middle ground between major and exotic pairs. Like exotic pairs, minor pairs do not include the US dollar. But unlike exotic pairs, minor pairs feature two currencies from major economic markets.
Minor pairs involve the currencies from the non-US half of major pairs being exchanged for one another. These currencies include:
Any time two of these currencies are involved in a forex trade, they comprise a minor pair.
As a middle ground between major and exotic pairs, minor pairs give traders some of the benefits and drawbacks of each type of pair. Examining three main characteristics of forex pairs will illustrate this point:
Moderate volatility: Because minor forex pairs involve currencies from countries on strong economic footing, the exchange rates between them are usually relatively stable. Not as stable as trades including the US dollar, but close. This means there’s less risk involved, but also less opportunity for a quick swing in your favour. Ultimately, minor pairs offer a balance between the security of major pairs and the volatility of exotic pairs.
Offered by most brokers: Different online forex brokers offer different forex pairs for traders to exchange. All brokers offer major pairs. Only some offer exotic pairs, and even then, not all the possible combinations. Minor pairs are offered by the majority of online brokers, making them fairly accessible. Once again, this falls between the hallmarks of major and exotic pairs.
Spread value: The more often pairs are traded, the easier it is for brokers to make money from them. Consequently, major pairs tend to have smaller spreads, while exotic pairs have larger ones. It is therefore more challenging to profit from exotic pairs. Minor pairs once again take the middle ground, with spreads in between major and exotic forex trades.