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According to the BIS Triennial Central Bank Survey (Bank for International Settlements), the US dollar (USD) remains the most widely traded currency globally, followed by Europe’s single currency (euro [EUR]), the Japanese yen (JPY), the British pound (GBP), the Australian dollar (AUD), the Canadian dollar (CAD), the Swiss franc (CHF), and the New Zealand dollar (NZD).
The currencies described above form ‘major’ currency pairs and are traded in the largest financial market in the world: the foreign exchange market, more commonly referred to as the Forex (FX) market. The FX market boasts a remarkable global daily turnover of US$7.5 trillion (BIS April 2022).
A major currency pair combines two currencies to form a ‘pair’, which always includes the USD either as the base currency (the numerator: the first currency listed on the left), or the quote/term currency (the denominator: the second currency on the right). The following lists the key major Forex pairs:
You may also find that some traders categorise major currency pairs in ‘American’ or ‘European’ terms. A straightforward way to remember this is if the base currency is in USD – for example, USD/JPY or USD/CAD – then it is a ‘European’ pair; that is, it is quoted in anything other than USD. Consequently, if the quote currency is listed in USD, it would be an ‘American’ pair.
A significant benefit of trading major currency pairs is their liquidity, which reflects how active a pairing is. You can think of liquidity as the amount of willing buyers and sellers available in a market. In an active market (i.e., high liquidity), there will always be a buyer (seller) for every seller (buyer), thus making it easier for you to trade, irrespective of which trading centre is active.
Highly liquid currency pairs will also limit ‘slippage’, the difference between the desired price you want to trade from and the actual price at which a trade is executed. Slippage can occur in market conditions exhibiting low liquidity and high volatility, such as when major news is released.
Another advantage of high liquidity is that it leads to tighter ‘spreads’, which means you will pay less to trade. A spread represents the difference between the bid price (willing buyers) and the ask price (willing sellers); this difference between the bid and ask prices is known as the spread. When trading major currency pairs, you will always buy (sell) at a slightly higher (lower) price than the current market value; the difference is the broker’s fee for facilitating a trade.
While it would be plausible to believe that due to major currency pairs exhibiting high liquidity, volatility would be low – this is not the case. Major currency pairs exhibit sufficient volatility and are influenced by many factors, including central bank decisions (and expectations of adjusting monetary policy), economic data, and trading sessions.
Newer traders are often encouraged to start trading with major currency pairs because they are liquid enough to help limit slippage, offer low trading costs, and provide enough volatility to employ most trading strategies.
One of the great things about major currency pairs is their availability across trading platforms. With FP Markets, you can trade the majors on both MetaTrader 4 (MT4) and MetaTrader 5 (MT5), as well as on cTrader and TradingView.
Additionally, given major currency pairs are widely traded, plenty of research is available on these key pairings. This includes daily technical and fundamental analysis, as well as weekly and monthly outlooks. You will also find a number of providers offering training courses, webinars, and live events to show you how to navigate major currency pairs. This makes it easier for newer traders to start trading the Forex market. Moreover, bank research desks offer research about specific currencies and economic indicators, which is beneficial for keeping up to date.
Unlike many formal exchange-traded markets, with defined opening and closing times, the Forex market operates 24 hours a day, five days a week. This is made possible because Forex is traded in the Over-The-Counter market (OTC), a decentralised marketplace made up of dealers connected through platforms across all major financial centres.
The Forex market's global reach is unparalleled, allowing traders to trade currencies in their time zones. However, it is worth noting that liquidity tends to be thin during the early hours of the Asian session. It picks up heading into Europe and is particularly high during the overlap between the London and New York time zones.
Via Contract for Differences (CFDs), Forex trading benefits from the ability to access high leverage, which allows controlling a larger position size with a relatively small amount of capital. However, it is important to recognise that while leverage can increase the return on a profitable position, it can equally magnify losses.
What new traders must understand with leverage is that it is not so much the leverage that is the issue; it is the trader's inability to predefine risk and follow a structured plan. If position size is correctly calculated and applied and a predefined risk tolerance is adhered to, the account’s leverage ratio, which is fixed, only determines the value of your initial margin. Higher (lower) leverage will equal a lower (higher) initial margin percentage.
Another great thing about trading major Forex pairs is the ability to specialise. Some traders may focus on only two or three currencies, affording an in-depth knowledge of a currency pair’s behaviour, common patterns, and macroeconomic drivers. However, this approach's opportunity cost can lead to missed trades in other currency pairs.
1. What are major currency pairs?
Major currency pairs are the most widely traded instruments in the Forex market and will always include the USD.
2. What are the benefits of trading major currency pairs?
Trading major currency pairs offers advantages such as high liquidity, sufficient volatility, worldwide availability, leverage, and the ability to specialise.
3. Where can I learn more about trading in the Forex market?
There are several avenues to learning about the Forex market. The FP Markets Academy, designed for new traders, is a great starting point.
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