When we talk about currencies, we can break them down into three main categories; Major, Minor and the Exotics.
Let’s look at some examples in each category and dive a little deeper into what each category means.
Majors
As we have defined several times in this course so far, there are seven major currencies in Forex. For clarity, these are:
- USD
- GBP
- EUR
- JPY
- AUD
- CAD
- CHF
Some people also include New Zealand Dollar (NZD) in this list, too.
As you know from earlier in the course, we only trade forex using currency pairs.
A major currency pair is any of the major currencies paired with the US Dollar. For example, GBP/USD, EUR/USD or USD/JPY
As USD cannot be paired with itself, we only have six major currency pairs, or seven if you include the NZD.
You will find that all of these pairs benefit from near-constant liquidity due to their high levels of trade with the U.S. A lot of the money you will see on the market will be from importers and exporters as well as speculators and investors.
Minors
Minors are any two of the major currencies listed above (that are NOT USD) paired with each other. For example, GBP/EUR or GBP/JPY.
Here is where the liquidity starts to drop off, but you can still find substantially liquid and busy markets in the minors. Look for countries that regularly trade with each other for the most liquid markets. Minors such as GBP/EUR, AUD/JPY and GBP/CAD.
There will be others with far less liquidity as the countries may have no real trading relationship.
Exotics
As you may have guessed, exotics are any of the currencies that aren’t listed above. The Exotic currencies are always traded in a pair with Major currency.
Typically, most of the exotic pairs have low volume, a large spread and can be extremely volatile due to their lack of market depth – but that is the very reason why a lot of people enjoy trading them.
However, there are still plenty of Exotics that are widely traded and have high trading volumes. These are usually the larger economies that do plenty of international trade.
Here are some of the most popular Exotic currencies:
- Norwegian Krone (NOK)
- Brazilian Real (BRL)
- Mexican Peso (MXN)
- Singapore Dollar (SGD)
- Indian Rupee (INR)
- Chinese Yuan (CNY)
- Turkish Lira (TRY)
- South Korean Won (KRW)
- South African Rand (ZAR)
- Danish Krone (DKK)
Forex may be the only place where you would get away with calling Norway and Denmark exotic!