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Choosing Forex Currency Pairs: Majors, Crosses and Exotics Explained

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Choosing Forex Currency Pairs: Majors, Crosses and Exotics Explained

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Forex trading can be a fascinating way to get involved with the markets, and can also be a great way to gain a profit on your capital. With more and more investors now seeing the opportunities currency trading presents thanks to the ability to trade in real time online with platforms like Oanda, there is plenty of good advice and information out there for beginner traders. However, the forex world has a whole lexicon of its own jargon for you to get to grips with, and this can be a little daunting at first.

If you are a new investor looking to understand more about forex currency pairs, you have probably seen terms like ‘major pairs’ and ‘exotics’ in your research. Here, we are going to explain what these refer to, and how they would affect your decisions around which pairs to focus on.

Major Pairs

As you might expect, major pairs are those most commonly traded, however the definition of them is actually somewhat surprising – a major pair is a commonly traded currency against the US dollar. This means that the USD and Japanese Yen pair is a major pair, as is the USD and British Pound, but the Euro and British Pound Sterling is not one, even though you may expect this to be a very popular pair. Most beginner traders look to a major pair, often the pair based on their home currency against the US dollar, as this will be the pair they would have the best feel for and knowledge about in terms of news and macroeconomics.

Exotics

Exotic currencies, representing the more obscure currencies, are typically paired with the US dollar or other significant currencies like the EUR, JPY, or GBP. Examples include the Mexican peso, South African rand, Turkish lira, and Brazilian real. While there’s no restriction on using these pairs, especially if you possess in-depth knowledge of the relevant countries, they are generally avoided by both beginners and many advanced traders. However, let’s consider a scenario where you are thoroughly up to date with the thb to usd exchange rate and possess a deep understanding of the economic and geopolitical factors influencing Thailand’s currency. In this case, trading exotic pairs like the Thai baht (THB) to the US dollar (USD) might align with your expertise. It’s important to note that trading exotic currency pairs demands a heightened level of research, analysis, and a nuanced understanding of the specific economic conditions and geopolitical factors affecting each currency.

Crosses

Crosses are the second most popular type of currency pair. A cross pair is two of the non-USD currencies from the major pairs traded against each other. That means that the EUR and GBP pair previously mentioned would be a cross, as would, for example, the Japanese Yen and Australian dollar pair. These can be good beginner choices if you simply feel more comfortable with your knowledge of events affecting two non-US currencies, or you want to trade your non-US home currency with different things.

As traders embark on their Forex journey, the understanding of currency pair classifications emerges as a cornerstone for informed decision-making. Whether opting for major pairs for their liquidity and stability, exploring cross pairs for diversified opportunities, or daring to engage with exotic pairs through extensive research and understanding, each choice represents a step towards proficiency in the ever-evolving Forex landscape. Wishing aspiring traders success and fulfillment in their endeavors within the dynamic realm of Forex trading!

Andy McGowan
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