What Are Currency Pairs, Majors, and Minors?

The foreign exchange market (Forex or FX) is the largest and most liquid financial market in the world, with daily trading volumes exceeding $7 trillion. At its core, Forex trading revolves around currency pairs — the quoted relationship between two different currencies. Understanding how these pairs work, and the distinction between major, minor, and exotic pairs, is essential for anyone looking to trade or simply understand global currency markets.

1. Understanding Currency Pairs

A currency pair represents the value of one currency relative to another. Every trade in the Forex market involves simultaneously buying one currency and selling another, because currencies are always traded in pairs.

Example:

If you see the pair EUR/USD = 1.0850, it means 1 euro (EUR) is worth 1.0850 U.S. dollars (USD).

• The first currency (EUR) is the base currency.

• The second currency (USD) is the quote currency (or counter currency).

So, if the EUR/USD exchange rate rises from 1.0850 to 1.0900, it indicates the euro has strengthened against the dollar — you now need more dollars to buy one euro. Conversely, if the rate falls to 1.0800, the euro has weakened against the dollar.

Base vs. Quote Currency

When traders buy a currency pair, they are buying the base currency and selling the quote currency. When they sell a pair, they are doing the opposite.

2. How Currency Pairs Are Quoted

Currency pairs are typically quoted in two prices — the bid and the ask.

• Bid price: The price at which the broker (or market) buys the base currency — the trader can sell at this price.

• Ask price: The price at which the broker sells the base currency — the trader can buy at this price.

• Spread: The difference between the bid and ask price, representing transaction cost and market liquidity.

For example, if EUR/USD = 1.0850 / 1.0852,
the spread is 0.0002, or 2 pips (the smallest price unit in most pairs).

3. Categories of Currency Pairs

Currency pairs are commonly divided into three categories:

1. Major pairs

2. Minor (cross) pairs

3. Exotic pairs

Each group has its own characteristics in terms of liquidity, volatility, and trading cost.

4. Major Currency Pairs

Major pairs (or “majors”) are the most heavily traded currency pairs in the world. They all include the U.S. dollar (USD) on one side of the pair because the dollar acts as the world’s primary reserve and reference currency.

Common Major Pairs

Key Traits of Major Pairs

• High liquidity — large daily trading volumes.

• Low spreads — minimal transaction costs.

• Tight correlation with major economic indicators.

• Stable price movements — though still subject to volatility during news events.

Because of their liquidity and tighter spreads, major pairs are typically the best choice for beginners and short-term traders (like scalpers or day traders).

5. Minor (Cross) Currency Pairs

Minor pairs, also known as cross currency pairs, are pairs that do not involve the U.S. dollar. They are combinations of other major currencies such as the euro, pound, yen, or Swiss franc.

Examples include:

• EUR/GBP – Euro vs. British Pound

• EUR/JPY – Euro vs. Japanese Yen

• GBP/JPY – British Pound vs. Japanese Yen

• AUD/NZD – Australian Dollar vs. New Zealand Dollar

• CHF/JPY – Swiss Franc vs. Japanese Yen

Why “Cross” Pairs Exist

Historically, before digital trading platforms, all exchange rates were quoted relative to the U.S. dollar. If a trader in Europe wanted to exchange euros for yen, they had to first convert euros into dollars, then dollars into yen.

Today, cross pairs make direct trading between two non-USD currencies possible, improving efficiency and reducing dependence on the dollar.

Characteristics of Minor Pairs

• Less liquidity than majors — meaning slightly wider spreads.

• Higher volatility, especially in pairs involving the pound (GBP/JPY, GBP/CHF).

• Greater opportunities for traders looking to exploit movements unrelated to the U.S. economy.

For example, if the European Central Bank (ECB) is tightening monetary policy while the Bank of England (BoE) is loosening it, a trader might choose EUR/GBP instead of trading a dollar-based pair.

6. Exotic Currency Pairs

While not always grouped with majors and minors, exotic pairs are worth mentioning for context.

Exotic pairs involve one major currency (often the USD or EUR) and one currency from an emerging or smaller economy.

Examples include:

• USD/TRY – U.S. Dollar vs. Turkish Lira

• USD/ZAR – U.S. Dollar vs. South African Rand

• USD/THB – U.S. Dollar vs. Thai Baht

• EUR/SEK – Euro vs. Swedish Krona

• USD/MXN – U.S. Dollar vs. Mexican Peso

Traits of Exotic Pairs

• Lower liquidity – fewer market participants.

• Higher spreads – trading costs are higher.

• Greater volatility – due to economic instability, political risk, or smaller market sizes.

• Unique macroeconomic drivers, such as commodity exports or regional crises.

Exotics can offer high potential returns but are riskier, making them more suitable for experienced traders with a strong understanding of global economics.

7. How Traders Use Currency Pair Classifications

Knowing whether a pair is a major, minor, or exotic helps traders manage risk, strategy, and expectations.

a) Risk Management

• Majors = lower volatility, predictable liquidity → good for conservative strategies.

• Minors and exotics = higher volatility → suitable for those seeking larger moves and potential profit, but at higher risk.

b) Correlation and Diversification

Currencies often move in correlated patterns due to shared economic relationships.

For instance:

• EUR/USD and GBP/USD usually move in the same direction because both are quoted against the U.S. dollar and tied to European economies.

• USD/JPY and EUR/JPY may move together based on yen strength or weakness.
  Understanding these correlations helps traders avoid doubling risk by entering multiple positions that move similarly.

c) Strategy Alignment

• Scalpers and day traders often favor majors for their tight spreads and fast execution.

• Swing traders may explore crosses for medium-term opportunities.

• Position traders might use exotics for long-term trends based on macroeconomic factors.

8. Factors Influencing Currency Pair Movements

Regardless of classification, currency pairs move based on relative strength between two economies. Key influences include:

1. Interest Rates

Higher interest rates attract foreign capital, strengthening a currency. Traders monitor central banks like the Federal Reserve, European Central Bank (ECB), or Bank of Japan (BoJ) for policy signals.

2. Economic Data

Indicators such as GDP growth, employment, inflation, and manufacturing output influence perceptions of economic health.

3. Geopolitical Events

Political instability, wars, and trade tensions can weaken a nation’s currency as investors seek safer assets.

4. Market Sentiment and Risk Appetite

Currencies like the JPY and CHF are “safe-haven” currencies — they rise when markets are fearful. Meanwhile, “commodity currencies” like AUD, NZD, and CAD often gain during global growth optimism.

5. Commodity Prices

For countries heavily dependent on exports (e.g., oil for Canada, gold for Australia), commodity price fluctuations directly impact their currencies.

9. The Role of the U.S. Dollar in Forex

The U.S. dollar (USD) is present in most major pairs for several reasons:

• It’s the world’s reserve currency held by central banks worldwide.

• It’s the benchmark for global commodity pricing (like oil and gold).

• It represents the largest economy and most stable financial system globally.

• Around 80–85% of all Forex trades involve the USD.

Because of this dominance, even cross and exotic pairs are often influenced indirectly by USD movements.

10. Choosing Which Pairs to Trade

When selecting which pairs to trade, consider these factors:

A beginner might start with EUR/USD due to its transparency and liquidity, while advanced traders diversify into crosses like EUR/JPY or AUD/NZD for more dynamic opportunities.

11. Example Scenarios

Example 1: Trading a Major Pair (EUR/USD)

A trader expects the European Central Bank to raise interest rates. They buy EUR/USD, anticipating euro strength. If EUR/USD rises from 1.0850 to 1.1000, that’s a 150-pip profit opportunity.

Example 2: Trading a Minor Pair (EUR/GBP)

If the Bank of England signals economic slowdown, GBP may weaken. The trader buys EUR/GBP to capitalize on a relatively stronger euro.

Example 3: Trading an Exotic Pair (USD/TRY)

Political instability in Turkey weakens the lira. A trader buys USD/TRY, expecting USD appreciation — but must account for wide spreads and unpredictable volatility.

12. Final Thoughts

In the Forex market, understanding currency pairs and their classifications — majors, minors, and exotics — is the foundation of effective trading.

• Majors dominate the market, offering tight spreads and reliable liquidity.

• Minors (crosses) provide opportunities beyond the U.S. dollar, often with greater volatility.

• Exotics bring higher risk and reward, driven by emerging-market dynamics.

Choosing which to trade depends on your risk tolerance, strategy, and knowledge of global economies.
By mastering how pairs are quoted, what drives their movements, and how they interact, traders can navigate the world’s largest market with confidence and precision.