One of the largest and most active markets in the world, the foreign exchange (forex) market handles over $5 trillion worth of trades every day.
If you’ve ever watched the news and heard correspondents talk about whether the Euro is strong or whether the Yen has risen or fallen, then you’ve experienced the effect of exchange rates.
Within that big ocean of potential is smaller oceans - the major currency pairs that generate the bulk of volume. In this guide, we will explore the majors and how you can start trading on BlueSuisse.
An Overview of What are the Major Currency Pairs in Forex Trading
Forex major currency pairs (or "majors") are the most traded currency pairs on the forex market. These are the most preferred pairs in forex trading due to their stable status and widespread use in countries.
Seven pairs constitute the majors:
- EUR/USD (Euro/US Dollar) - The most traded pair, representing approximately 25% of forex volume worldwide. The UK calls it "cable".
- USD/JPY (US Dollar/Japanese Yen) - Second most traded pair in the world.
- GBP/USD (British Pound/US Dollar) - Meaning "sterling" or "cable" in the UK.
- USD/CHF (US Dollar/Swiss Franc) - A pair popular with low-risk traders.
- USD/CAD (US Dollar/Canadian Dollar) - Closely related to oil prices.
- AUD/USD (Australian Dollar/US Dollar) - Also known as "the Aussie" and dependent on commodity prices.
- NZD/USD (New Zealand Dollar/US Dollar) - Also referred to as "the Kiwi" and tied to commodity prices.
What are the Examples of Major Currency Pairs?
Let's look at some major currency pairs to see how this works. For example, the EUR/USD pair means to buy or sell the euro versus the US dollar.
If you believe the euro will go higher against the dollar, you buy euros and enter the EUR/USD long position. On the other hand, if you think the dollar will gain momentum over the euro, you sell euros short. By creating smart strategies, you can make profits by exchanging currencies in this context.
Another example is GBP/USD. This pair gives us an idea of the relative strength of the British pound to the US dollar.
The traders look at UK economic data, Bank of England interest rate moves, and political events in order to buy or sell pounds. Major currency pairs can change in value for many different reasons, including economic or political.
Another last is USD/CHF, where traders are betting that the Swiss franc will appreciate or decline against the dollar. Major currency pairs are known as the most risk-free currency pairs and are widely preferred on exchanges.
How Many Major Currency Pairs Are There on the Market?
As mentioned earlier, seven currencies make up the main currency pairs – EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, and NZD/USD. These 7 pairs account for more than 85% of total daily forex trading volume, according to the Bank of International Settlements.
They are the most active pairs with the smallest spread, perfect for beginners as well as advanced traders. You can plan exchanges between major currency pairs while trading, especially to take confident steps in your large investments and keep your profit margin high.
Benefits of Trading with the Major Currency Pairs
Major currency pairs are among the currencies preferred by professional investors as well as beginner traders. Being frequently preferred in trading brings with it many advantages.
There are a few main reasons why you should focus your forex trading on the major pairs.
Here are some key major currency pairs advantages:
- High liquidity - Being the most traded pairs, majors enjoy low spreads and the freedom to buy and sell quickly without causing ripples in the market.
- Minimal slippage - With billions traded daily, major pairs have little risk of orders getting canceled or filled at unfavorable prices.
- Round-the-clock markets - Because majors operate worldwide, they enjoy uninterrupted liquidity throughout forex trading days.
- Less volatility - Major pairs show fewer moves every day compared to minor and exotic pairs.
- Lower transaction fees - Brokers offer lower spreads on majors because they are popular.
- Economic determinants – Major pairs are subject to readily identifiable macroeconomic stimuli.
Major currency pairs are good targets for short-term scalping and long-term positional trading as they are extremely popular and stable.
However, it should not be forgotten that the major currency pairs disadvantages also include things to consider.
Factors That Affects the Values of Major Currency Pairs
It is essential for traders to learn what drivers shape major pairs in order to gain an advantage.
Here are some of the most significant:
- Difference in interest rates - The difference in interest rates between two countries has a large impact on currencies.
- Economic performance - A country's GDP growth, employment, inflation, and other data moves its currency.
- Central bank actions - Monetary policy (rate hike/decline) affects currency markets.
- Government debt – Debt and credit downgrades lower the value of a currency.
- Political stability - Any problems that shake investor trust will depreciate a currency.
- Commodity prices - Commodity exporters’ currencies (Canada, Australia) fluctuate in price depending on resources.
- Trade deficits - If the country has big trade deficits, its currency will weaken over time.
- Geopolitical instability - Issues that derail commercial relationships or provoke conflicts undermine currency power.
Knowing how economic and political trends affect these parameters is a trader’s informational advantage.
Effective Trading Strategies for Major Currency Pairs
Now that we know about some of the characteristics and driving forces behind the major currency pairs, let’s check out some of the profitable trading techniques:
- Day Trading - Capitalising on intraday swings by entering and exiting positions within the same day. Demands attention to the financial headlines and technical analysis.
- Swing Trading - Short-term trading with positions from 1-5 days. Puts fundamentals, technicals and exact entry/exit levels together for a profit.
- Position Trading - Take on a position for a few days or weeks in anticipation of macro catalysts. Basic analysis support/resistance zones.
- Scalping - A high-frequency trade that takes advantage of small intraday moves. Scalpers use trendlines, indicators, order flow to capture 1-5 pips per second.
- Carry Trades - Paying out the interest rate differential by buying a yielding currency and selling a low yielding one. Slow because it has more of an eye on yield rather than short term price action.
The best combinations in Forex trading strategies are the combination of fundamental and technical analyses that are specifically planned for investors and best suited to their risk profile.
The instruments and platforms of BlueSuisse enable traders to implement a wide range of trading strategies on major pairs.
Which Major Currency Pairs are the Most Preferred?
Knowing the relationships between major currency pairs tells us what moves might take place between them.
These are just some of the major associations:
- EUR/USD and GBP/USD have high positive correlation because both the euro and the pound are affected by similar variables for the EU and UK.
- USD/JPY and USD/CHF show a weak negative correlation. If the yen moves higher, the safe-haven Swiss franc tends to fall against the US dollar.
- AUD/USD and NZD/USD move in tandem due to commodity prices and risk tolerance.
- The USD/CAD correlates negatively with oil. A healthy crude market props up the Canadian dollar while weakening the US dollar.
- EUR/USD and USDJPY may have some bidirectional interactions between Europe/US and Japan with regard to risk sentiment and monetary policy differences.
Measuring these correlations lets traders diversify positions into correlated and counter-correlated pairs to mitigate portfolio risk.
Why Trade with Major Currency Pairs in Forex?
In short, here’s the beauty of major currency pairs:
- Unsurpassed liquidity offers low spreads and quick order execution.
- Low prices and large buyers/sellers pools reduce slippage risk.
- Open global markets mean you can trade 24 hours a day.
- Lower transaction costs thanks to favorable broker terms.
- Correlations provide hedging and diversification opportunities.
- Major pairs are suitable for every timeframe, from scalping to long term trading.
- BlueSuisse's tight spreads, advanced platforms, and research empower success.
Whether you are a beginner or an expert, concentrating your forex trading efforts in the major pairs of currency offers a low-risk way to gain access to the biggest market.
Using fundamental and technical analysis that suits your strategy, major pairs bring long-term profits.
The deep knowledge of the nature, macro drivers, trading strategies, and intermarket interactions of all the major pairs gives traders a great advantage.
BlueSuisse is committed to providing you with the tools, market access, and education you need to make the most of these intensely liquid pairs.