Currency pairs​ are pairs in which the value of one currency is measured against another. Some currency pairs are called “major” because they are traded much more often than other pairs. They all also contain USD in them, as it is seen as the largest economy in the world. Let’s learn more about those pairs and see how we can benefit from trading them.

The article covers the following subjects:

What Are the Forex Major Pairs?

Opinions differ on this question. Some experts name only four major currency pairs (EUR/USD, USD/JPY, GBP/USD, and USD/CHF), while others think that there are seven (the four given above plus NZD/USD, USD/CAD, and AUD/USD).

Although USD is almost always seen as a compulsory part of any major currency pair, some believe that cross currencies like EUR/CHF,  EUR/JPY, and GBP/EUR deserve to be included.

If a currency pair doesn’t include USD, it is called a cross currency pair or a “cross.” Major cross currency pairs can also be called “minors”— for example, EUR/CHF, EUR/NOK, GBP/JPY, and many more.

List of the Major Currency Pairs

Let’s have a look at the top seven currency pairs.

1. EUR/USD;

2. USD/JPY;

3. GBP/USD;

4. USD/CHF;

5. AUD/USD;

6. USD/CAD;

7. NZD/USD.

The last three are often called commodity pairs, and sometimes they are excluded from the list of the major currency pairs.

Understanding the Major Currency Pairs

A Forex trade is the buying of one currency and selling another at the same time. So when you purchase a currency pair, you buy the base currency (it is the one that is written first) and sell the quote currency (the one that goes second). Vice versa, when you sell a pair, you sell the base currency and buy the quote one.

The prices of trading pairs and currencies are affected by interest rates, economic growth, or the GDP, of countries whose currencies you are trading in Forex.

USD is a compulsory part of any major currency pair. They are called majors because 75% of all trades are with these pairs. EUR/USD alone takes 20% of all transactions. The USD/JPY, GBP/USD, and USD/CHF follow with a relatively smaller share of the market.

Why Traders Trade the Major Currency Pairs

The answer is simple — it’s really profitable. Major pairs have smaller spreads than exotic currency pairs, which attract more traders. This keeps the volume of major pairs high. So, why are high volumes so crucial?

The higher the volume is, the easier it is for a trader to enter and exit the market. Pairs with low volumes are harder to buy or sell. Furthermore, it can move the price significantly. Another reason why high volumes are so popular is that the chance of slippage is smaller. 

The two main special features of major pairs are that they are the most stable and the most liquid. Major pairs attract traders because it’s easy to predict whether the price will go up or down. This is very important for traders with little experience. 

The Four Traditional Major Pairs

As was mentioned above, some experts and traders don’t agree with listing seven major pairs. They think there are only four of them.

EUR/USD

The pair consists of the Euro and the American dollar. Even though you can trade at any time you want, there are some secrets that can help you to minimize risks. The best time is when both European and American markets are open, and both are ready for business. However, it is a bad idea to start trading as soon as sessions are open — it’s better to wait a little. If you prefer day trading, try not to miss the period between 1 pm and 4 pm GMT, as it has the greatest efficiency. 

USD/JPY

The best time to trade the American dollar for the Japanese yen is from 12 pm to 8 pm GMT (American trading session) and from 11 pm to 8 am (Asian trading session). This pair, just like many other ones, is strongly affected by GDP growth or fall, inflation, interest rates, and unemployment data.

GBP/USD

The best time to trade the Great Britain pound for the American dollar is from 6 am to 4 pm GMT, as you can extract a profit and cover spread and commission costs easier during this period. Maximum efficiency is waiting for you from 8 am to 10 am and from noon to 3 pm GMT.

USD/CHF

The time periods when you can get maximum profit in trading the American dollar for the Swiss franc are between 2 am and 5 am and between 8:30 am to 10 am due to the schedule of economic releases of both countries. 

Commodity Currencies

A commodity currency is a currency that moves alongside the world prices of primary commodity products due to the country’s heavy dependency on the export of certain raw materials. In Forex, there are several commodity currencies, such as the New Zealand dollar, Australian dollar, Canadian dollar, Norwegian krone, South African rand, Brazilian real, Russian ruble, and Chilean peso.

AUD/USD

The popularity of trading the Australian dollar for the American one has been growing slowly but steadily since 2000 after the Australian commodities boom. The best time to trade the Australian dollar to the American one is between 7 pm and 4:30 am GMT. 

USD/CAD

The pair includes the American dollar and the Canadian one. The entire North American trading session opens at 12 pm and closes at 8 pm GMT. If you are thinking about trading the Canadian dollar for the American one, it is better to do it within the time limit to have better liquidity.

NZD/USD

The New Zealand dollar and the American dollar can be active sometimes from 10 pm to 7 am GMT, but the best time to trade the pair is between midnight to 2 am, from 6 am to 8 am, and between noon and 5 pm. The NZD/USD pairing is often called the Kiwi pair. It accounts for almost 2% of the total trading turnover.

Cross Currencies

Cross currency pairs are pairs that don’t contain USD. The Japanese yen and Euro are the two most widely spread currencies in cross currency pairing.

GBP/EUR

European trading hours are considered the best time to trade the Great Britain Pound and Euro. They are from 7 am to 4 pm GMT. 

EUR/CHF

The pair includes the Euro and the Swiss franc. After major market announcements, this currency pair experiences higher volumes. The best time to trade Euros for Francs is between 8 am to 4 pm GMT.

EUR/JPY

This is another minor currency pair, which consists of the Euro and the Japanese yen. The ideal time to trade it is during news releases around 1:30 pm. You can trade the pair with maximum efficiency till 8:30 pm EST.

How Are Prices of the Major Pairs Determined?

Currency pair prices are divided into two categories: the bid (or buy) price and the ask (or sell) price. The value of a currency pair is determined by the strength or weakness of the base currency in relation to the cross currency. The base currency value is always 1.

How To Trade the Major Forex Pairs

There are several easy steps you need to take to trade a certain pair. To get started, just follow this list:

1. Create an account and deposit some money.

2. Choose the pair you are interested in.

3. Perform technical and fundamental analysis.

4. Choose the Forex strategy and think about risk management. Our experts at LiteFinance are here to provide guidance.

5. Open a buy or sell position.

6. Monitor the market to avoid unexpected losses.

How to calculate a currency pair? 

The most popular major currency pair in the world is EUR/USD. The EUR/USD rate for today is 0.98870, which means that at the moment, one euro is worth 0.98870 US dollars. The left part of the currency pair expresses what is sold or bought (euros), and the right side is what the quoted price (dollar) is expressed in.

Let’s calculate all the basic parameters a trader needs when trading a major currency pair using the EUR/USD as an example.

Pip price

A pip is the smallest price move in a Forex. For most currency pairs, they are limited to ten thousandths of a unit.

Calculation formula:

Pip value = 1 pip / instrument rate * trade volume.

The cost per pip for a 1-lot EUR/USD trade is: 0.0001/1.001*100000 = $9.99.

When the transaction volume decreases, a pip’s value will be reduced proportionally. With a minimum trading volume of 0.01 lots (1000 euros), the value of one pip will be $0.0999.

Collateral and leverage

Leverage is the amount of funds a trader can borrow from a broker to open larger trades. In order for positions to remain open, it is necessary to maintain a certain level of collateral, that is, margin. The larger the leverage, the less funds are needed to open transactions and the smaller the margin is.

For example, to open 1 EUR/USD lot, you will need $100100, while with leverage of 1:50, you will need only $2002. Using leverage of 1:200, it will take only $500.5 to open a trade with the same volume.

Position Size

The position size on Forex is measured in lots, where one standard lot is equal to 100,000 units of the base currency. In the EUR/USD pair, it is equal to 100,000 euros.

It is important to follow risk management rules when determining the position size. One popular method implies that you never put more than 2% of your account equity at risk. 

Position size formula:

Capital size * risk/distance from the entry to the stop loss * value per pip.

Example. The trader’s trading capital is $1000. The distance from the entry to the stop loss is 40 pips, and the EUR/USD pip value is $10.

$1000*0,02 / 40*10 = 0,05 lots per trade.

A trader can open trade of a larger volume using leverage.

Trends and trending currency pairs in Forex

A Forex trend is the directional movement of an asset’s price over a certain period, with a clear intensity and consistent updating of local highs.

There are three main types of trends: 

1. An uptrend or bullish trend indicates a rising price. The trend continues if each subsequent maximum is higher than the previous one.

2. A downtrend or bearish trend indicates a falling price. Within it, prices renew their lows.

3. A sideways trend or flat does not move in one direction. It indicates the most common market condition.

The trend continues until a signal of its termination appears. For example, the price could not exceed the previous high in a bullish market.

EUR/USD

EUR/USD is the most popular Forex pair as it includes the currencies of the two largest economies in the world. It is highly volatile (96 pips on average), making it an excellent choice for intraday trading. Following the changes in EUR/USD, it is easy to follow the news, as the macroeconomic indicators of the US and the EU, as well as the minutes of the Fed and ECB meetings are regularly published on the Internet.

USD/CAD

This pair is highly liquid and volatile (80-100 pips). USD/CAD is so popular because of Canada’s strong oil and gold export-oriented economy. For this reason, the pair’s rate is easy to predict based on the state of the precious metals and oil markets.

AUD/USD

This pair is also known for long and strong trends. The AUD/USD rate depends on production volumes and commodity prices, as Australia is a major exporter of agricultural products and minerals. The state of the economies of China and Japan also affects the pair’s rate.

GBP/JPY

GBP/JPY is also popular among traders. Its average volatility is 110 pips. However, novice traders rarely choose this pair, as too many factors affect its rate. When trading GBP/JPY, speculators need to consider the state of the UK and EU economies (data on GDP, unemployment, inflation, industrial production, etc.), as well as Japan’s monetary policy. This pair is often used in the carry trade strategy due to the difference in interest rates.

Example of a Major Pair Price Quote and Fluctuation

Currency prices are constantly changing. The prices of major pairs change more often because so many traders put through orders all the time. However, the price volatility is low, as these pairs are considered the most stable.

The price for the EUR/USD may be 1.1285, which means it costs $1.1285 to buy €1. If the rate moves down to 1.1238, that means the Euro has decreased in value because it now costs $1.1238 to buy €1. If the rate rises to 1.1290, it costs more USD to buy a Euro, so the US dollar has decreased in value, or the Euro has appreciated.