There are many ways to classify currencies. One of them is majors or minors. Right below is the list of the main currencies and how you can benefit from trading them.
Definition
Below is the list of major currencies:
- US Dollar (USD)
- Euro (EUR)
- Japanese yen (JPY)
- British pound (GBP)
- Swiss franc (CHF)
- Canadian dollar (CAD)
- Australian dollar (AUD)
- New Zealand dollar (NZD)
All other currencies are considered minor.
What classifies a currency as major
Apart from the currency’s relative strength and inflation rates, liquidity is the number one factor affecting its power in trading forex. The eight identified above are most commonly used for forex trading, giving them the high liquidity to be considered a ‘major currency.’
Major and minor currency pairs
There are eight dominant currencies. However, we have only seven major pairs. A major FX pair is made up of the US dollar (USD) and one of the remaining seven currencies. For example, EURUSD is a major currency pair. The countries above have a substantial trading relationship with the US, providing constant liquidity by exporters and importers.
A pair that is made up of two majors is not considered a major pair. For example, EURCHF is not a primary FX pair. Although some of these countries have active trade deals that constitute a high level of liquidity (like EURGBP), they are still insignificant compared to the liquidity of USD.
Trading major currency
High liquidity is the main advantage of trading a major legal tender. There will be lower risk thanks to low volatility, and the trends are more definitive. Also, you will be less susceptible to being short squeezed.
You can benefit by having a deep understanding of the US social and political situation, especially regarding trade policies enabling you to predict the reaction of the currency pair.
Trading minor currency
Some minor currency pairs go under the radar but have high liquidity based on existing trade deals between countries. Although Britain left the EU after Brexit, the trade deals between the two are still strong, and the EURGBP pair remained popular. Another pair of currencies that benefit from trades due to geographical reasons is AUDNZD. These two Oceania countries have a strong relationship and numerous trade deals.
Conclusion
A major currency is one of the eight most popular currencies in the world. A major FX pair includes the USD with one of the seven remaining legal tenders.
