There are around 170 currencies in the world, and in the forex market, they are divided into three categories: major, minor, and exotis, which can be traded depending on your overall investment plan.
In this article, we’ll be reviewing different types of currency pairs and discuss why you should consider trading with them.
There are eight major currencies in use, seven of which are paired with the United States Dollar (USD) to form major currency pairings. These currency pairs represent 68 percent of the total trading volume on the forex markets. Because of their high liquidity and the fact that they trade with a comparatively small price range most of the time, the major currency pairs are in high demand.
For example, the EUR/USD pair is a major forex trading pair and is also the most widely traded currency in the world. However, in a fast-changing market like Forex, the pair also serves as a safe haven for traders.
Minor Currency Pairs
Currency pairs that are not paired up with the US dollar are referred to as minor currencies, also known as crosses. The minor currency pairs are arguably more liquid because of their representation of all currencies except the USD. Though the currency pairs of miners have high volatility in the market they are less likely to be traded on a daily basis.
However, the unavailability of the US dollar, on the other hand, has a direct influence on trading volume, with the greenback contributing for around 88 percent of all currency deals. These assets are likely to appeal to risk-averse investors, particularly those who favor currencies like the British pound (GBP) and the Japanese yen (JPY).
Exotic Currency Pairs
Exotic currency pairs are the one which matches with USD and currency from emerging markets and frontier economies. MXN/USD, THB/USD are examples of such pairings. Exotic currency pairs are extremely volatile and can be subjected to huge price changes in a short amount of time; such pairs should only be traded if you have a healthy appetite for risk.
As a result, they tend to provide great potential for profit from an investor’s standpoint, though this must be balanced against the higher risk and chance of losing money.
While exotic pairings are a good way to diversify and scale your interests over time, we recommend avoiding them while you’re just getting started in the forex market.