What are Currency Pairs in Forex Trading?
The international forex market is a place where various types of currency pairs worth trillions of dollars are exchanged every day. Notice how the terms “currency pairs” and “exchanged” appear? There’s a reason for it.
A stock trader can buy a single share of a company using fiat currency like INR or USD. The value of the investment will grow or fall in the same fiat currency. The currency market isn’t like the stock market.
A currency trader can only exchange a pair of currencies. The reason behind this is simple – you can only buy one type of currency using another. Why someone does this can vary.
Governments and large financial institutions engage with the currency market to manage their foreign reserves. Retail traders tap into the forex market to earn profits.
For example, if an Indian currency trader expects USD to gain value compared to JPY, they’ll buy a USD-JPY pair. Conversely, if the trader expects USD to lose value against EUR, they’ll buy the EUR-USD pair.
Thus, it is important to understand the types of currency pairs you can trade in India. What’s more – the type of currency trading we’re referring to is possible through exchange-traded currency futures and options.
Bear in mind that online forex trading for retail individuals is still a developing domain in India, which means you can buy and sell derivatives of not more than 7 forex pairs.
📌 The term forex means foreign exchange, which in and of itself means exchanging one currency for another.
Types of Currency Trading Pairs
A currency pair refers to a combination of two currencies. The first currency is referred to as the base and the second is known as the quote. When you trade currencies, you’ll use the quote to acquire the base currency.
Certain currencies are popular for forex trading, none more so than the USD. The USD takes the cake when it comes to being a base currency and quote currency. The reason? The USD is known to be one of the strongest currencies in the world.
You’ll notice that the USD is thus paired with multiple currencies including INR. In fact, it’s one of the metrics used to divide the types of currency pairs that you can trade anywhere in the world.
1. Major Currency Pairs
A major currency pair has the highest trading activity (volume) and liquidity in the forex market. The USD is a pillar of major currencies as it is either a base or quote in most of them.
In India, the major currency pairs you can trade include:
As per data, major currency pairs make up 3/4th of all trades in the forex market. In fact, Europe’s EUR combined with USD is known to be the most traded currency pair in the world.
This means that Indian forex enthusiasts have access to the best currency pairs to trade even though the options are limited. Globally, these are the major forex pairs that can be traded.
|Major Currency Pair||Country||Nickname|
|EUR-USD||Euro Zone – USA||Fiber|
|GBP-USD||Great Britain – USA||Cable|
|USD-JPY||USA – Japan||Gopher/Ninja|
|USD-CHF||USA – Switzerland||Swissy|
|USD-CAD||USA – Canada||Loonie|
|AUD-USD||Australia – USA||Aussie|
|NZD-USD||New Zealand – USA||Kiwi|
Fun fact: Most forex pairs have a nickname that may sound funny to regular folks who aren’t currency traders.
2. Minor Currency Pairs
A minor currency pair is different from a major currency pair because of two reasons. First, it includes the second most traded forex pairs after the majors. Second, it is made of important Dollar currencies other than the USD.
In terms of liquidity and volume, minor currency pairs stand a notch below major pairs but significantly above exotic pairs. Indian forex traders can’t access minor currency pairs as of writing this blog.
But here’s a global list of top minor currency pairs that are generally traded.
|Minor Currency Pair||Country||Nickname|
|GBP-CAD||Great Britain – Canada||Loonie|
|EUR-AUD||Euro Zone – Australia||Aussie|
|NZD-JPY||New Zealand- Japan||Kiwi|
The term minor currency pairs is often used interchangeably with cross currency pairs. The reason being both types of forex pairs do not include the USD.
Fun fact: the EUR has the second highest trading volume after the USD. But the difference between 1st place and 2nd place is very, very high.
3. Currency Crosses
A cross currency pair generally includes EUR, GBP, and JPY but not the USD. Each currency cross includes a prefix based on the base currency it includes. For example, a forex pair with GBP as the base is called a GBP Cross.
Indian forex traders have access to currency crosses which include:
Globally, there are multiple currency crosses available with EUR, GBP, and JPY as the base. Here are some of them.
|EUR-AUD||Euro Zone – Australia|
|EUR-CAD||Euro Zone – Canada|
|EUR-CHF||Euro Zone – Switzerland|
|EUR-INR||Euro Zone – India|
|EUR-GBP||Euro Zone – Great Britain|
|GBP-AUD||Great Britain – Australia|
|GBP-CAD||Great Britain – Canada|
|GBP-CHF||Great Britain – Switzerland|
|GBP-INR||Great Britain – India|
|GBP-NZD||Great Britain – New Zealand|
4. Exotic Currency Pairs
Exotic pairs are a combination that typically includes a currency from a developed nation (GBP, USD, EUR, etc) and a developing nation (INR, TRY, SEK, etc). There’s another way to look at exotic currency pairs.
That said, there are exotic currency pairs that have two currencies from developing nations as the base currency and quote currency. In terms of trading volume, exotic forex pairs stand third after major and minor currency pairs.
This also means that exotic pairs are known to lack liquidity and volume because they are not traded as much as other forex pairs. Forex traders in India do not have the option to trade exotic pairs. Unless you include USD-INR and JPY-INR in the list.
Here’s a snapshot of exotic currency pairs from around the globe
|Exotic Currency Pair||Country|
|AUD-PLN||Australia – Poland|
|AUD-NOK||Australia – Norway|
|CHF-SEK||Switzerland – Sweden|
|EUR-HUF||Euro Zone – Hungary|
|EUR-RUB||Euro Zone – Russia|
|GBP-MXN||Great Britain – Mexico|
|GBP-TRY||Great Britain – Turkey|
|ZAR-JPY||South Africa – Japan|
Most Popular Currency Trading Pairs
There are multiple forex pairs available for trade in India and around the globe. But only a few of them stand out in terms of trading volume and liquidity. We’ve covered the popular currency pairs in the following list.
Considering the fact that USD and EUR are the two biggest currencies in the world, they feature at the top of the list of most popular currency pairs. Nicknamed the “Fiber”, EUR-USD became a tradable forex pair in 1999.
The EUR was introduced to promote economic stability and growth in the Euro Zone. Recently, the EUR hit parity against the USD and became a hot topic around the world. We covered the story in Finance Unwrapped.
- Is EUR-USD tradeable in India: Yes
The USD-Yen combination is considered to be one of the best currency pairs to trade. There are two reasons for this. One, USD and JPY are known to be safe haven currencies. Two, both are used as reserve currencies. Since it’s a major forex pair, USD-JPY has a nickname – the Gopher.
- Is USD-JPY tradeable in India: Yes
GBP-USD is the oldest currency pair in the world. The pair has been traded since the 1800s. There was a time when the exchange rate between the pair was as high as 10:1, meaning $10 could get £1. But now, $1.2037 can get £1. GBP-USD is nicknamed the Cable.
- Is GBP-USD tradeable in India: Yes
The AUD-USD pair has been in existence since the 1960s. It is a popular forex pair because of the USD’s stability and Australia’s export-heavy economy. The pair is often referred to as the “Aussie”.
- Is AUD-USD tradeable in India: No
This all-North American forex pair has hit parity several times in the past. USA’s interest rates and Canada’s exports are known to affect the forex pair. USD-CAD is nicknamed the “Loonie”.
- Is USD-CAD tradeable in India: No
How to Start Trading Currency Pairs?
If you want to start trading currency pairs in India, you will need to open a trading account. It’s important to ensure that you choose your broker wisely because the services and fees will have an impact on your trading strategies.
Once you’ve chosen a broker for currencies, you’ll have to complete a KYC process to open a trading account. You’ll need to furnish documents that will serve as your identity, address, and income proof.
Here’s how the KYC process works on Dhan.
After your account has been opened, you can transfer funds to start trading forex pairs like EUR-INR, EUR-USD, USD-INR, USD-JPY, and more. Here’s how to fund your trading account.
FAQs on Types of Forex Pairs
Q. What are the types of currency pairs?
There are four types of pairs in currency trading which are known as majors, minors, crosses, and exotics. Majors are the most traded currency duos in the forex market that include EUR-USD, USD-JPY, and others.
Minors are non-USD Dollar pairs like GBP-CAD and EUR-CAD. Crosses include EUR, GBP, and JPY as the base or quote but do not include USD. Exotic pairs are currency crosses of emerging economies like JPY-INR.
Q. What are the 7 major pairs in forex?
Major pairs are the most traded currencies in the forex market. They are known to be liquid forex pairs that include:
Fun fact, these forex pairs have nicknames that are commonly used by currency traders. Read all about it here: Forex Nicknames Explained: Cable, Fiber, Chunnel, & More!
Q. What is the best currency pair to trade?
Major forex pairs are known to be the best in terms of volume and liquidity. In fact, major pairs involving the USD change hands the most in the forex market. These best major forex pairs include:
Q. What are the Most Traded Forex Pairs?
The forex market is rife with liquidity and even then there are certain forex pairs that take the cake in terms of liquidity and volume. Historically, EUR-USD, USD-JPY, and GBP-USD have been the most traded forex pairs followed by AUD/USD and USD/CAD.
Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.