Currency pairs are the basic elements of the market in the world of Forex trading. Major, minor, and exotic pairs are the three categories in which currency pairs are divided. The most traded of them are the major currency pairs, which include the world's most stable and liquid currencies. These pairs' volume, volatility, and predictability make them important for traders of all skill levels. It is vital to know about these pairs' behaviour to trade Forex successfully.
Major Currency Pairs: What Are They?
The US dollar (USD) paired with any of the other seven major currencies—the Euro (EUR), Swiss Franc (CHF), British Pound (GBP), Canadian Dollar (CAD), Australian Dollar (AUD), and New Zealand Dollar (NZD)—are considered major currency pairs. The bulk of the trading volume in the Forex market is made up of these pairings. These are the most often-used major currency pairs:
Euro/US Dollar (EUR/USD)
US Dollar/Japanese Yen (USD/JYP)
British Pound/US Dollar (GBP/USD)
US Dollar/Swiss Franc (USD/CHF)
Australian Dollar/US Dollar (AUD/USD)
US Dollar/Canadian Dollar (USD/CAD)
New Zealand/US Dollar (NZD/USD)
If you’ve noticed, the common denominator in each of the pairs above is the US dollar. The USD acts as the global benchmark due to its central role in the global economy and its status as the world’s primary reserve currency.
Major Currency Pairs: Liquidity & Trading Volume
The high liquidity of major currency pairs is one of their notable traits. The speed and ease at which a currency pair can be traded or bought without greatly affecting its price is known as liquidity. Due to their high volume of trading, these pairs usually have smaller spreads—that is, the gap between the ask and bid prices—which is useful for traders wanting low-cost trades.
For instance, with about 20–30% of all trading volume on the Forex market, the EUR/USD pair is the most traded globally. Even when working with a lot of money, traders can start and exit positions with ease due to the high liquidity in main pairings. In addition to boosting market competitiveness and ensuring price stability, this liquidity also helps to maintain peak trading hours.
Major Currency Pairs: Volatility & Risk
The rate at which prices move throughout a specific period is referred to as volatility. Because major currency pairs have large reserves and the nations involved have fairly stable economies, they are typically less volatile than exotic or small pairs. Even though major pairings tend to behave more predictably, they can nevertheless swing due to several factors, such as central bank policies, economic data releases, and geopolitical events.
For example, when the Federal Reserve or the Bank of Japan announce economic statistics or modify interest rates, pairs like USD/JPY may see major swings. When political events like Brexit negotiations or changes in UK fiscal policies occur, the GBP/USD exchange rate can exhibit extreme volatility.
Traders can better manage the risks involved in forex trading by having a better understanding of these events and how they might affect currency movements.
Trading Strategies for Major Currency Pairs
Both long-term investors and short-term traders find major currency pairings attractive due to their strong liquidity and relatively low volatility. Trading during times with high market activity, when liquidity is at its peak and price movements are more noticeable, like the overlap between the London and New York sessions, is a popular tactic.
Also, traders often predict the behaviour of these pairs using technical analysis tools like trend indicators, support and resistance levels, and moving averages. Analysing news releases and economic information as part of fundamental analysis may reveal patterns for expected future movements.
Take away
The basis of the Forex market are major currency pairs, that offer greater liquidity, tighter spreads, and generally stable behaviour. So to get closer to "how to trade forex efficiently?" knowing about major currency pairs is a good place to start.
Trading decisions can be made better if you are aware of the factors that affect these pairs. These factors include everything from interest rates and economic data to geopolitical events and market conditions.
Although major pairs are not as volatile as minors and exotics, trading major pairs is often less risky. To successfully navigate the market, traders need to stay alert and take into account both technical and fundamental elements.
