There are three type of currency pairs: the majors, the minors, and the exotic.
- The majors
These are currency pairs with the USD dollar as one of the currencies in the pair. The US dollar is the most commonly used currency in the world and currency pairs which include the USD are known to have massive liquidity.
These currency pairs also have smaller spreads compared to other currency pairs in almost all brokers.
Examples include: EUR/USD (Euro/US dollar), USD/JPY (US dollar/Japanese yen), USD/CHF (US dollar/Swiss franc), USD/CAD (US dollar/Canadian dollar), GBP/USD (British pound/US dollar), AUD/USD (Australian dollar/US dollar), and NZD/USD (New Zealand dollar/US dollar).
- The Minors
They are also called cross currency pairs.
These currency pairs don’t have the US dollar. However, they include currencies of developed countries like Britain and the like.
Examples include: EUR/GBP (Euro/British pound), GBP/JPY (British pound/Japanese yen), CHF/JPY (Swiss franc/Japanese yen), EUR/AUD (Euro/Australian dollar), NZD/JPY (New Zealand dollar/Japanese yen) and GBP/CAD (British pound/Canadian dollar)
- The Exotic currency pairs
The exotic currency pairs are those currency pairs which include a major or minor currency in one side and a currency of a developing world on the other side.
Examples include: EUR/TRY (Euro/Turkish lira), JPY/NOK (Japanese yen/Norwegian krone), NZD/SGD (New Zealand dollar/Singapore dollar), USD/HKD (US dollar/Hong Kong dollar), GBP/ZAR (British pound/South African rand), and AUD/MXN (Australian dollar/Mexican peso).
Currencies are traded according to the trading sessions. The currency pairs that a trader trades more often will depend on the Forex trading session that the trader likes trading. Although, for some, this is automatic since they are only awake during certain trading session and asleep during other trading sessions.
The most traded currency pairs must have at least one of the most used currencies of the world. The most used currencies of the world are: US dollar, The British pound, the Euro pound and the Japanese Yen. Currency pairs with these currencies are the most traded pairs especially in the regions.
Forex trading sessions
When choosing the currency pair that you wish to trade, it is important that you choose a currency pair whose trading session is open.
A trading session is the duration of time when the forex market of a certain region is most active. Remember that the world is a sphere and that when it is 10:00 am in your place that is not the time in every other part of the world.
There are four major trading sessions and they have their opening and closing hours. These sessions include:
- the New York trading session,
- the London trading session,
- the Tokyo trading session and
- The Sydney Trading session.
The New York trading session opens at 12:00 pm GMT and closes at 9:00 pm GMT. The Sydney session opens at 10:00pm GMT and closes at 7:00 am GMT. The Tokyo session opens at 11:00pn GMT and closes at 8:00 am GMT. The London session opens at 7:00 am GMT and closes at 4:00pm GMT.
Looking at the trading sessions, you will realize that the London session overlapped with the New York trading session as from 12:00pm to 4:00pm GMT. This makes the markets involving currency pairs from this regions very volatile between the overlapping duration. Currency pairs such as the EURUSD, NZDUSD and GBPUSD tend to have large movements during these time.
The Tokyo also overlaps with the Sydney session as from 11:00pm to 7:00am. Therefore currencies like the AUDJPY, CNYJPY and AUDCNY are very volatile at this time and register very large movements.
The Tokyo session also overlaps with the London session for at least an hour from 7:00am to 8:00AM GMT. This is the perfect time to trade the currency pairs involving currencies from the regions covered by these trading sessions. For example, it would be the perfect time to trade the EURJPY or the GBPJPY.
Choosing the currency pair to trade
When choosing a currency pair, you should take the following considerations in mind:
- The trading session of at least one if not both currencies involved in the currency pair should be open. When trading currencies in their trading sessions, the markets are more volatile and there are better ranges and you are therefore guaranteed to make huge profits. However, you should be warned that at the same time if you do not make the right trade, then you will make very huge losses due to the larger market movements
- Practice trading currency pairs which have the major used currencies of the world which include the US dollar (USD), the Euro (EUR), the Great Britain Pound (GBP) and the Japanese Yen (JPY). The currency pairs that you choose should at least have one of these. These will work very well for you if you use this and trade during the right trading session.