If you’re new to forex trading, it is vital to understand the different currency pairs and which ones may work best for you. This guide provides an overview of major currencies and th
What Are the Major Currencies in Forex?
The most frequently traded currencies in the forex are known as “major currencies”. This is based on the volume of global transactions.
So, what are the 8 major currencies? Currently, the eight topmost commonly traded money systems by volume are:
- US dollar (USD)
- Euro (EUR)
- Japanese Yen (JPY)
- British Pound (GBP)
- Australian Dollar (AUD)
- Canadian Dollar (CAD)
- Swiss Franc (CHF)
- Chinese Yuan (CNY)
These leading currencies account for most of the trading in the global forex market. You may notice the New Zealand Dollar (NZD) is absent from this major currencies list. Indeed, it has now been topped by the Chinese Yuan (CNY).
Major Currencies vs Minor and Exotic Currencies
Aside from the major currencies above are also minor and exotic money systems. These provided their own benefits under certain economic circumstances.
Here are a few examples of these:
- Brazilian Real
- Russian Ruble
- Indian Rupee
- South African Rand
What Are Major Currency Pairs?
Following WW2, the gold standard collapsed, and the Bretton Woods system established the USD standard. This then pegged all currencies to the US Dollar at a fixed exchange rate.
Since then, most international trade settlements have been based on the USD, which is still the largest global reserve currency. Minor or major money systems paired with the USD are thus what we call major currency pairs. These are, for example:
- EURUSD
- GBPUSD
- USDJPY
- USDCAD
What Are Cross Currency Pairs?
Currency pairs not involving the USD are called cross pairs and have their own benefits. Indeed, with the settlement currency dominated by the US dollar, it isn’t always possible for countries to operate direct currency exchanges from one to another.
In this case, currency A would be exchanged into USD, then USD would be exchanged into currency B. Therefore, we can calculate the cross-exchange rate using the exchange rate of each currency with the dollar.
The cross pairs that include the major currencies EUR, JPY, and GBP are the most popular. From an investor’s point of view, cross pairs present the advantage of eliminating the need to maintain two open positions.
Let’s take an example. Assume that AUDUSD is 0.7 and USDJPY is 110. The AUDJPY exchange rate is, therefore:
0.7 x 110 = 77
Investors who are bearish on JPY and bullish on AUD can simply long the AUD/JPY. This avoids going long on both AUD/USD and USD/JPY.
