Forex trading is defined by the exchange of one currency for another, with the intent to re-exchange the currencies at a more favourable rate. In essence, forex is about prognosticating how the relative value of two currencies will fluctuate.
Forex traders, when executing a trade, must first select the two currencies being exchanged. These currencies are known as the pair. Theoretically, this pair can include any two currencies from around the globe. But usually, the currencies that are exchanged come from stable countries with liquid assets. This type of forex currency pair is known as a major pair.
Major forex pairs earn their name by virtue of being the most frequently traded currencies. As you might expect, these pairs are dominated by currencies from stable, economically powerful states.
Major forex pairs include:
These forex pairs make up approximately 80% of all worldwide forex trading transactions.
There are a few reasons major forex pairs are as major as they are. The first is familiarity. Each pair includes two currencies from countries that are well-known on the international stage. They often drive international news, giving investors insight into possible fluctuations.
Secondly, each major forex pair features two currencies from political stable and economically sound countries. This characteristic lends itself to a certain level of security that developing nations cannot match, which is an attractive quality for the majority of investors.
Third of all, the popularity of major forex pairs is something of a self-perpetuating attribute. All online forex brokers have major pairs available to trade because that’s what most traders buy and sell. And traders buy and sell these pairs so much because they are so accessible to trade.
If a forex pair isn’t major, it’s minor or exotic. These lesser traded pairs feature a currency outside the seven major partners. This may sometimes include one major currency paired with a less frequently traded currency, or two less frequently traded currencies.
Major forex pairs are popular because they are more predictable and stable than minor or exotic pairs. In this sense, they may feel like the safest option for trading forex.
On the other hand, minor or exotic pairs present an opportunity for a quick, dramatic profit that some traders seek out. Of course, instability is a double-edged sword, so exotic pairs can also lead to quick losses, so it really comes down to your trading style.
Can I trade any forex pair with an online forex broker?
Different forex brokers have access to different markets. Some have broad access, others just focus on the most popular pairs. Access to markets is something you should take into consideration when selecting the online forex broker you trade with.
In this case, nearly every forex broker will give you access to major pairs. The difference between broad and narrow often comes down to how many minor or exotic pairs a forex broker has.