Currency pairs can be divided into three categories…
The major currency pairs are the most traded currencies in the world, so there are about seven major currency pairs:
- EUR/USD (Euro Dollar)
- GBP/USD (Pound Dollar)
- USD/CHF (Dollar Swissy)
- USD/JPY (Dollar Yen)
- AUD/USD (Aussie Dollar)
- NZD/USD (Kiwi Dollar)
- USD/CAD (Dollar Loonie)
Among the seven major currency pairs, the bulk of the transaction is usually within these top four, so these are usually the most liquid currency pairs there is out there.
Here’s what I mean:
Source: Bank of International Settlements
You can see that the USD in 2016, 87.6% of all transactions is USD transactions.
About 31% is Euro transactions, 21% Japanese yen, about 13% the British pound, which I mentioned earlier.
Then, you have the Aussie dollar, Canadian, Swiss franc, Japanese yen, Swedish krona, and the New Zealand dollar.
Cross Currency Pairs
A cross currency pair basically means that it is a non-USD pair.
Here are the following:
- Euro Crosses: EUR/CHF, EUR/GBP, EUR/AUD
- Yen Crosses: EUR/JPY, GBP/JPY, AUD/JPY
- Pound Crosses: GBP/AUD, GBP/NZD, GBP/CAD
Exotic currency pairs basically refer to currency pairs in developing countries most of the time.
Here are the following exotic currency pairs:
These are not major currency pairs even though there’s a USD because you can see that the dollar is pegged into countries which are classified as developing nations.
One thing to note is that these exotic currency pairs tend to have wider spreads because they are not actively traded like the major currency pairs.
So, don’t be surprised if you see the spread on these pairs, like a few hundred pips.
The bulk of the transactions are usually found on the major pairs.
Cross currency pairs have no USD involved in them.
Exotic pairs are typically currency pairs in developing nations.