Saxo Group
When you first start forex trading, it can feel like there’s a lot to take in. But one thing every trader comes to realise very quickly is that not all currency pairs are created equal.
The major forex pairs, which are some of the most traded in the world, form the backbone of the forex market. These pairs are popular not just because they’re traded often, but because they tend to be more liquid and have tighter spreads than the rest.
Getting to know these major pairs is important since they’re linked to the largest global economies, and their movements can give you a good sense of broader financial trends. They are also potentially an easier way for you to dip your toes into forex trading, as there is typically more information and analysis on them you can find online.
Currency pairs are categorised into three main groups: majors, minors, and exotics. Among these, major forex pairs hold a special place, as they represent the most traded and liquid currencies in the global market. But what exactly makes a pair a 'major’ one?
Major forex pairs always include the US dollar (USD) as one half of the pair, paired with the currency of another major global economy. This inclusion of the USD is no accident—it's the world's primary reserve currency, involved in nearly 90% of all forex transactions.
These pairs are known for their liquidity, which means they can be bought and sold in large quantities without causing significant price movements. Liquidity is a crucial factor because it results in tighter spreads, which are the differences between the bid (buy) and ask (sell) prices. Tighter spreads reduce trading costs, making these pairs more attractive to both retail and institutional traders.
Moreover, the economies behind these currencies are closely watched, with regular updates on economic indicators like interest rates, employment figures, and GDP growth. This constant flow of information contributes to the lower volatility of major pairs compared to exotics, providing a more predictable trading environment for both short-term and long-term strategies.
In the forex market, the term 'major pairs’ refers to the most traded currency pairs, all of which involve the US dollar (USD) paired with another major global currency. These pairs are the cornerstone of forex trading due to their high liquidity, tight spreads, and the significant role they play in the global economy.
Let's take a closer look at each of these seven major forex pairs:
The EUR/USD pair is the most traded currency pair in the world. The euro, representing the Eurozone, is paired with the US dollar, making this pair a barometer of global economic health. It's known for its tight spreads and relatively low volatility, making it a favourite among traders.
The USD/JPY pair is heavily influenced by the interest rate differentials between the US and Japan. The yen is often seen as a safe-haven currency, so this pair is closely watched during times of economic uncertainty. Its high liquidity makes it one of the most actively traded pairs in the market.
Often referred to as ‘Cable’, the GBP/USD pair is known for its volatility and large price movements. Economic and political events in the UK significantly affect the British pound's value, making this pair a focus point during periods of uncertainty, such as Brexit.
The USD/CHF pair, sometimes called the ‘Swissie’, is another popular major pair. The Swiss franc is often viewed as a safe-haven currency, much like the yen, making this pair a go-to during market turmoil. Switzerland's economic stability and neutrality add to the Franc's appeal.
The AUD/USD pair is influenced by commodity prices, particularly gold and iron ore, due to Australia's export-driven economy. This pair is often used by traders looking to capitalise on fluctuations in commodity prices, and its movements can be more volatile compared to other majors.
The USD/CAD pair, often called the ‘Loonie’, is closely tied to oil prices, given Canada's status as a major oil exporter. Changes in oil prices can significantly impact this pair, making it a key focus for traders involved in commodity trading.
The NZD/USD pair is influenced by New Zealand's agricultural exports, especially dairy products. Like the AUD/USD, this pair is sensitive to changes in commodity prices and is often traded during the Asian trading session.
While these seven pairs are widely recognised as the major forex pairs, it's essential to acknowledge that some traders and financial sources draw a line after the first four pairs—EUR/USD, USD/JPY, GBP/USD, and USD/CHF—considering these the ‘core’ majors due to their dominance in trading volume.
The remaining three—AUD/USD, USD/CAD, and NZD/USD—are often grouped under ‘commodity pairs’ due to their economies' reliance on natural resources.
This distinction highlights the subtle variations in how different traders and analysts categorise major pairs, but for practical purposes, all seven are crucial to know before you start trading.
Trading the major forex pairs offers several advantages that make them the go-to choice for traders. Here are the main benefits:
One of the most significant benefits of trading the major currency pairs is their high liquidity. Liquidity refers to the ease with which an asset can be bought or sold in the market without affecting its price.
The major pairs involve the most traded currencies globally, leading to a constant flow of buying and selling activity. This high liquidity ensures that traders can enter and exit positions quickly, even with large orders, without experiencing significant price slippage.
The high liquidity of major currency pairs contributes to another key benefit: tight spreads. The spread is the difference between the bid (buy) price and the ask (sell) price. In a liquid market, this difference is minimal, reducing the cost of trading.
Tight spreads are particularly important for traders who use short-term strategies like scalping, where frequent trades are made for small profits. Lower trading costs can significantly improve overall profitability.
Major currency pairs are backed by the world's largest economies, which means they are subject to a wealth of economic data and news. This transparency allows traders to make more informed decisions based on economic indicators like GDP growth, inflation rates, and central bank policies.
Additionally, the relative stability of these economies makes major pairs more predictable compared to exotic pairs, which can be influenced by less transparent or more volatile economic conditions.
Because major currency pairs are the most popular in the forex market, they are widely available across all trading platforms. This broad accessibility ensures that traders can find plenty of resources, tools, and educational materials tailored explicitly to trading these pairs.
Moreover, the widespread coverage of these pairs by financial news outlets means traders can stay informed about the latest developments that may impact their trades.
While some major pairs, like GBP/USD, can be volatile, others, like EUR/USD and USD/JPY, typically exhibit lower volatility.
This lower volatility can benefit traders who prefer a more stable trading environment where price movements are less erratic and more reflective of fundamental economic factors. This stability makes it easier to apply technical analysis and predict potential market movements.
Several major pairs include currencies that are considered safe havens, such as the Swiss franc (CHF) and the Japanese yen (JPY). During periods of global economic uncertainty or market turmoil, these currencies tend to appreciate as investors seek safer assets.
Trading major pairs that include these safe-haven currencies can provide opportunities to hedge against risk or capitalise on market sentiment shifts.
While major currency pairs offer numerous advantages, they are not without their challenges. Before you start trading, keep in mind the following drawbacks:
Major currency pairs, such as EUR/USD and USD/JPY, attract many traders, from individual retail investors to large institutional players like hedge funds and banks.
This intense competition can lead to a highly efficient market where price movements quickly reflect all available information. As a result, it can be more challenging for traders to identify and exploit inefficiencies or gain a competitive edge.
While tight spreads are generally beneficial because they reduce transaction costs, they also mean that profit margins per trade can be lower. This is particularly relevant for traders who rely on larger price movements for significant profits.
With less room for large gains on each trade, traders might need to increase their trade frequency, which can add complexity and increase exposure to market risks.
While low volatility in major currency pairs can benefit risk-averse traders, it can also be a drawback for those looking for more significant price swings and higher profit opportunities. In markets with more stable price movements, traders might find fewer opportunities for substantial gains.
This can make it challenging to achieve substantial profits without employing larger positions or more aggressive strategies.
Major pairs are closely tied to economic indicators from the world's largest economies, such as the US, Eurozone, and Japan. While this provides opportunities, it also means these pairs can be heavily influenced by economic releases like GDP data, employment reports, or central bank announcements.
High sensitivity to economic news can lead to sudden and significant price movements, which might disrupt trades if you're unprepared for the short-term volatility that such data can cause.
Major pairs are popular not just among individual traders but also among large institutions. This popularity can sometimes result in crowded trades, where too many market participants are on the same side of a trade.
For example, if there's a widespread expectation that the USD will strengthen, a significant number of traders may go long on USD pairs, which can reduce the potential for profit as the market becomes saturated and less responsive to new information.
Major currency pairs are heavily influenced by the monetary policies of their respective central banks, such as the Federal Reserve for the USD or the European Central Bank for the EUR. While these policies provide predictability, they can also introduce risks.
Unexpected interest rate changes or shifts in monetary policy can lead to sharp market reactions, potentially resulting in losses if traders are caught off guard. The heavy dependence on central bank decisions can sometimes overshadow other market factors, limiting trading opportunities to specific economic events.
The major forex pairs are a great place to start when you are beginning to learn about forex, especially since they’re tied to the world’s biggest economies. Because they’re so liquid and have tighter spreads, a lot of traders focus on them. Before diving into the rest of the market, it’s good to really get to know how they move.
As mentioned, major pairs tend to respond to big economic news, which can make them easier to follow. However, surprises can still happen. That’s why it’s important to stay on top of global events and have a solid trading plan in place.
If you keep an eye on the news and stick to a thoughtful strategy, trading the major pairs could give you a strong foundation for your forex trading and become a stepping stone to other currencies.
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy