What Are Different Types of Currency Pairs: Major, Minor, and Exotic

Disclaimer: The content below is for educational and informational purposes only and does not constitute investment advice, personal recommendations, or a solicitation to buy or sell financial instruments. Investing involves risks, including potential loss of capital. Past performance is not indicative of future results. Investors should consult a qualified financial advisor or conduct their own research before making investment decisions.

If you ever looked at the Forex market and thought, "Why are currencies always mentioned like EUR/USD or GBP/JPY and not just ‘Euro’ or ‘Dollar’?", then you're already asking the right question.

The truth is: in forex, currencies don't trade alone. They trade in pairs. You're always exchanging one currency for another, which is why the market is built around currency trading pairs.

In this guide, the types of currency pairs are broadly explained by how they are grouped into major, minor, and exotic forex pairs for educational purposes only. We will also help you understand the underlying logic that explains why certain currencies are paired together and what makes them different from other currency pairs.

Understanding How Currencies Are Traded in Pairs

Let's begin with the very basics: how currency pairs work.

A currency pair is simply the value of one currency compared against another. It tells you how much of the second currency you need to buy one unit of the first currency.

A typical example of the price of currency is given as:

EUR/USD = 1.3560/1.35602 (sell rate/buy rate). In this case, the euro is the base currency and the US dollar the quote currency. Buying one unit of the base currency will cost 1.35602 in the quote currency, which in this case is US dollars. In other words, when traders sell one euro, they get 1.3560 US dollars (before costs and fees, where applicable).

Here is the basic form of each:

Base Currency vs Quote Currency

• The base currency is the first currency.
• The quote currency is the second currency.

So, for EUR/USD:

• EUR = base
• USD = quote

When you trade forex, you are doing two things in one go:

• Buying the base currency
• Selling the quotation currency

This is one of the most important forex trading terms to understand early, especially if you're learning about forex pairs for beginners.

Why Are Currency Pairs Categorised?

Not all forex pairs move the same way. Some trade every day in massive volumes with tight pricing and smooth movements. Others move painfully slowly until they suddenly don’t, often due to changes in market conditions.

So, traders divide forex trading currency pairs into three categories, based on liquidity and popularity, although these characteristics may change over time:

• Major forex pairs
• Minor currency pairs
• Exotic forex pairs

Let’s break them down.

Major Forex Pairs (Heavyweights)

The major currencies are the most heavily traded in the global market. The major currencies are usually the USD, paired with other major currencies such as the euro, yen, or pound.

These pairs comprise the majority of the forex market, mainly because they have:

• High liquidity (more buyers and sellers)
• More narrow spreads (low transaction costs)
• Typically smoother price movements than in less actively traded pairs, although volatility may still occur.

Major Forex pairs

• EUR/USD
• USD/JPY
• GBP/USD
• USD/CHF
• AUD/USD
• USD/CAD

The EUR/USD exchange is often regarded as the most actively traded pair around the world. This is because both economies have a huge influence on international trade and finance. Market participants often monitor this pair closely, although it may move considerably with major developments in the global order.

Minor Currency Pairs (Cross Pairs)

Now let’s talk about the pairs that are still popular but don’t include USD.

These are called ‘minor currency pairs’ or “crosses.” They involve the major economies, but without the USD in the equation.

Examples of Minor currency pairs:

• EUR/GBP
• EUR/JPY
• GBP/JPY
• AUD/JPY
• EUR/CHF

Minor pairs tend to have:

• Slightly lower liquidity than the majors
• Wider spreads compared to majors
• Movement may be influenced by the relationship between the two economies

Major vs Minor Currency Pairs: What is the Real Difference?

If you’re comparing major vs minor currency pairs, here’s the simplest way to think about it:

• Majors = USD + big global currency, high volume, lower spreads
• Minors = big global currency + big global currency (no USD), slightly lower volume

Minors can be great if you want greater exposure to non-dollar investments; however, this may involve different risk characteristics. For example, if you want to trade how the euro is doing against the pound without USD noise, EUR/GBP makes more sense than EUR/USD from a comparative perspective.

Exotic Forex Pairs (High Risk, High Personality)

Exotic currency pairs involve the following combinations

• one major currency (such as USD, EUR, or GBP)
• a currency from an emerging market economy (such as Mexico, Turkey, South Africa, Thailand, etc.)

Examples of exotic pairs:

• USD/TRY (US Dollar / Turkish Lira)
• USD/ZAR (US Dollar / South African Rand)
• EUR/MXN (Euro / Mexican Peso)
• USD/THB (US Dollar / Thai Baht)

Exotics often come with:

• Much wider spreads
• Lower liquidity
• Bigger jumps in price due to economic or political news, which may increase trading risk

These pairs can move quickly, especially when markets are responding to inflation, elections, central bank surprises, or geopolitical news, and may result in significant gains or losses.

How to Trade Currency Pairs

1. Choose a Currency Pair: Choose between the different types of currency pairs (major, minor or exotic) based on your solid trading strategy and risk management framework.
2. Analyse the Pair: Don't get in without giving it a proper thought. Stay up-to-date with the economic calendar for any upcoming news that may affect your currency pair.
3. Check the Spread: Know the cost of trading before entering a trade.
4. Size Your Position Correctly: Due to higher volatility, trading smaller sizes on exotics is better than what you may trade on EUR/USD, although this does not eliminate risk.
5. Manage your risk: Stop-loss orders can help to protect your positions if the market turns unfavourable, but do not guarantee protection against losses.

Final Thoughts

The different types of currency pairs are the foundation of forex trading, and learning how they function makes it easier to navigate the market. The major forex pairs have high liquidity, while the minor currency pairs add some variation without US dollars, and then you have the exotic currency pairs, which have more risk along with more variety in prices. No matter what you are trading in, good analysis and risk management matter most and losses are always possible.

Disclaimer: This content is for educational purposes only and does not constitute investment advice, personal recommendations, or a solicitation to buy or sell financial instruments. All investments involve risk, including potential loss of capital. Investors should consult professional financial advisors and consider their personal circumstances before making any investment decision.