What are minor currency pairs in forex, really? To put it simply, they are any pair of currencies that are not US dollar (USD), euro (EUR), British pound (GBP), Japanese yen (JPY), Australian dollar (AUD), Swiss franc (CHF), or Canadian dollar (CAD).
Forex trading is a global market that operates 24/7. The main basis of this market is the exchanges between currencies.
These exchanges are divided into major, minor and exotic branches. The most commonly used and sometimes most profitable pairs by professional forex traders are known as minor currency pairs.
There are more than 180 nationally traded currencies in the world and many of those combinations are very obscure and don’t trade at all.
A registered broker, BlueSuisse supports more than 80 currencies and a wide variety of minor pairs on MT4, MT5 and TradeMaster platforms.
In this blog, we will examine small currency pairs in detail and at the end, you will learn how to trade with minor currency pairs and how to create unique trading strategies. Let’s explore some characteristics of smaller currency pairs in more detail.
Top Minor Currency Pairs in Forex Trading
While they don’t typically have as much volume or liquidity as majors, a few minor currency pairs have earned decent reputations from traders.
Among the most widely used are:
- NZD/USD (New Zealand dollar vs US dollar) - As a New Zealand currency, the kiwi receives reasonable trading attention because of its association with commodity prices. It can be a good proxy for risk sentiment.
- AUD/JPY (Australian dollar vs Japanese yen) - As Australia and Japan are trading partners, the two currencies usually trade together. This pairing allows exposure to differential interest rates.
- EUR/CHF (euro vs Swiss franc) - The Swiss franc is a safe-haven currency, which tends to strengthen when the risk appetite subsides. This pair can reflect volatile European risk environments.
- GBP/JPY (British pound vs Japanese yen) - British and Japanese economic activity influences sterling and yen exchange rate. Traders keep an eye on UK politics and Bank of England policy.
- USD/CAD (US dollar vs Canadian dollar) – As Canada’s "petro dollar," CAD strength relies heavily on oil prices. This pair is suitable for trading energy market signals.
It is useful to remember that minor currency pairs, which beginner traders and professional traders alike should pay attention to, are very variable and users should continue with the strategies that suit them best. While trading, you should adjust your risk management and analyze the forex market well.
How Do Forex Traders Use Minor Currency Pairs?
Even though minor currency pairs get lower volumes than majors, they’re useful for traders. Here are some tips:
Keep tabs on economic data and central bank decisions from the two countries whose currencies form the pair. Both indicators and interest rate actions usually provoke powerful reactions.
Watch out for the way a minor pair is linked to major pairs or stocks. For instance, NZD/USD and AUD/USD often move together because they are linked to commodities.
Think of technical indicators, chart patterns, moving averages, and indicators as ways to find trading signals. Less volume means that trades might have to be smaller. Trailing stops adjusting the stop level can "lock in" profits.
Look closely at a minor currency pair to find out what typically drives its price action and what economic or political news might affect it. Back-testing strategies is wise.
Advantages and Challenges of Trading with Minor Currency Pairs
Trading with minor currency pairs can be a bit more difficult and complicated than the most preferred currencies.
Let's look at the prominent advantages of minor currency pairs:
Advantages of Minor Currency Pairs
- Potential for large intraday price swings - With less participation, minor pairs can see more volatility as economic or political news emerges.
- Trading room to differentiate - By trading pairs that are less saturated, traders can acquire an "edge" from observing trade signals that others miss.
- Diversification - By including minor pairs in a portfolio, you can diversify the exposure of your overall currency basket from majors.
Disadvantages of Minor Currency Pairs
- Lower liquidity - It may be harder to enter and exit large positions without moving the market significantly. Slippage tends to be higher.
- Higher spreads - The difference between the bid and ask is often larger, which limits the profit you can earn per trade.
- Less dense data - Majors dominate economic reports and news reports, making fundamental analysis a bit trickier.
- More risk - Less liquidity means stops may not always be triggered at desired levels, increasing the risk of larger than expected losses.
What Affects the Prices of Minor Currency Pairs?
The forex market is based on currencies and financial systems traded around the world. Therefore, their values may vary due to many different factors. These factors can be social, political, and even psychological.
Therefore, when trading forex, it is essential to follow and analyze the countries where currencies are traded.
While major currency pairs are reflective of general macroeconomic conditions and global risk appetite, the prices of minor pairs are more directly shaped by each country’s own macroeconomic situation and policy.
Key price drivers may include:
- Interest rates - The rate hikes from the central bank, especially those linked to the other currencies, can trigger intense reactions.
- Inflation - An increase in consumer or producer prices drives rate increases, pumping a currency. Unexpected disinflation may weaken it.
- Budget deficits - A country with a steady trade deficit can be subjected to a devaluation of its currency while surpluses encourage higher prices.
- Deficits in government spending - Large government budget deficits raise debt risk, potentially destabilizing a currency.
- Commodity prices - In countries that export commodity goods such as oil or metals, the value of their currencies is driven by the cost of their primary commodities.
- Political risk - Any event that raises concerns about the domestic economy’s direction or policy stability adds pressure to a currency short-term.
- Percent growth - Higher or faster economic growth indicators support a currency over the long run relative to slower trading partners.
How Are Minor Currency Pairs Different From Major Currency Pairs?
While major and minor pairs function according to basic forex supply and demand laws, there are some key differences between major & minor currency pairs that traders need to be aware of:
- Liquidity - Major pairs such as EUR/USD are constantly the world’s most liquid and active pairs. Minors do not have this deep liquidity reserve.
- Volatility - As they’re small in size, minor pairs typically exhibit greater extreme short-term price swings in response to new news or activity.
- Fundamental drivers - Major pair rates take macro trends into account, while minors are more specific to the particulars of each country.
- Information - Economic data and analyst coverage focus on majors. Fundamental analysis of minors requires more individual research efforts.
- Spread - The typical difference between the bid-ask spread is usually wider for minor pairs compared to liquid majors like EUR/USD.
- Portfolio use - Majors are sufficient for most traders, but minor pairs can provide more diversity when mixed in a balanced forex portfolio.
- Risk profile - Less liquid minors carry higher risks of sudden losses due to larger potential market impact from trades or inability to exit positions easily.
Why Trade in Forex with Minor Currency Pairs?
Beginner traders prefer to trade in less risky and perhaps less profitable currencies, while professional traders prefer to trade in minor currencies that are traded less frequently but have higher profit margins.
Majors provide reliable liquidity, but skilled traders move to minor pairs for even more appealing returns:
- Potential for Large Short-Term Price Swings: Economic shocks create heightened volatility.
- Constant Fundamental Surprises: Staying ahead of smaller nation releases provides an edge.
- Diversification Lowers Portfolio Volatility: Investing in uncorrelated assets reduces portfolio volatility.
- Continuous Education: Monitoring other economies builds macroeconomic knowledge over time.
With prudent risk management and position sizing, minor currency pairs complement major pairs nicely in a diversified forex portfolio.
By providing access to over 80 pairs of currencies on MT4, MT5 and TradeMaster platforms that are among the most advanced in the industry, BlueSuisse enables traders to profit from both major and minor currency markets.
As a licensed and regulated broker with the highest standards, BlueSuisse offers strong liquidity, tight spreads, and strong risk management to ensure trading success.
Sign up for your BlueSuisse account in only 4 steps: Register, Verify, Fund, Trade! If you wish, you can open your live account directly, or you can create a demo account to browse the forex market and get information about the interface. You can begin by using the demo account to backtest your trades on minor pairs of currency, before moving on to live trading.
BlueSuisse also gives technical and fundamental analysis from our in-house research team to support your trading decisions.
Don’t wait – join BlueSuisse today and start taking your first steps in the exciting world of forex trading with minor currency pairs!