n Forex market currencies are traded in pairs, where the value of one is relative to the other. Simply said, you can’t go out with only one sock. You buy and sell in currency pairs
For example, the British Pound against the US dollar is a widely traded pair. When trading this pair, you are buying one currency and selling the other simultaneously.
Imagine this pair of socks again. But this time you wear two different socks on your feet.
Both of them will be in constant conflict about which one fits your outfit better.
The same way each currency pair is constantly in a war.
Exchange rates fluctuate based on which currency is stronger at the moment.
There are three categories of currency pairs: MAJORS, CROSSES & EXOTICS.
The main difference between them is that Majors always include USD, in comparison with Crosses that don’t include it. Exotic ones consist of ONE major currency and ONE currency from an emerging market (EM).
Major Currency Pairs
Like we already said, these pairs all contain the U.S. dollar (USD) on one side.
You might notice that we keep mentioning USD. This is because USD is the King in Forex and you always pay respect to the king.
Compared to the crosses and exotics, price moves more frequently with the majors, which provides more trading opportunities.
The majors are the most liquid in the world, which makes them the most traded.
Vice versa, the more frequently traded something is the higher its liquidity.
For example, more people trade the EUR/USD currency pair and at higher volumes, than the AUD/USD currency pair.
This means that EUR/USD is more liquid than AUD/USD.
Major Cross-Currency Pairs or Minor Currency Pairs
Here comes the Queen! These currency pairs don’t contain the U.S. dollar (USD).
They are known as cross-currency pairs or simply as the “crosses.”
While not as frequently traded as the majors, the crosses are still pretty liquid and still provide plenty of trading opportunities.
The most actively traded crosses are derived from the three major non-USD currencies: EUR, JPY, and GBP.
EXOTIC CURRENCY PAIRS
We know you are already thinking about some exotic fruits. Right? Like pomegranate?
Unfortunately, there is no connection between exotic currency pairs and our pomegranate.
Exotic currency pairs are made up of one major currency pair with the currency of an emerging economy, such as Brazil, Mexico, Chile, Turkey, or Hungary.
Unlike major currency pairs, exotic spreads can be much higher, much more volatile, and have low liquidity.
In exotic currency pairs, the potential gains may be higher, but at the expense of higher risk and higher trading costs.
In addition, some exotic currencies may be traded without restrictions, others may be partially convertible (the government controls it) and others may not be traded at all, as the specific country’s government requires high stability to trend such currency freely.
The chart below contains more examples of exotic currency pairs.
Depending on your forex broker, you may see the following exotic currency pairs so it’s good to know what they are.
Sounds like another one of James Bond’s missions? If only James Bond knew how to trade, he wouldn’t have worked as a spy.
G10 was established by 8 countries in the beginning, which form the International Monetary Fund (IMF).
Among them are Belgium, Japan, France, Italy, Netherlands, USA, Canada, UK and the central banks of two others, Germany and Sweden. Then Switzerland joined, but the G10 name remained the same.
The G10 enables the IMF to borrow specified amounts of currencies from these countries under certain circumstances.
This is what makes G10 currencies to be ten of the most heavily traded currencies in the world, which are also ten of the world’s most liquid currencies.
Traders regularly buy and sell them in an open market with minimal impact on their international exchange rates.
A crown is a currency used in Iceland, Norway, Sweden and Denmark.
These countries now had one currency, with the same monetary value, with the exception that each of these countries minted their coins.
● Norwegian – krone
● Icelandic – króna
● Swedish – krona
● Greenland – koruuni
Differences in the spelling of the name represent the differences between the North Germanic languages. The crown not only has different names in different countries but also has cool nicknames.
It is like your pet’s name.
SEK and NOK are “Stockie” and “Nokie“.
So when paired with the U.S. dollar, USD/SEK is read “dollar stockie” and USD/NOK is read “dollar nockie”.
Can you guess which countries’ currencies are these? Sounds like a special kind of bee?
“CEE” is an acronym that stands for Central and Eastern Europe. So we can say it is a bee that lives in Central Europe.
Most of these countries were together in the former communist states from the Eastern Bloc (Warsaw Pact) in Europe.
Let’s see what kind of bees they are: Albanian bee, Bulgarian bee, Croatian bee, the Czech Republic bee, Hungarian bee, Polish bee, Romanian bee, the Slovak Republic bee, Slovenian bee, and the three Baltic States: Estonia, Latvia, and Lithuania.
Regarding the FX market, there are four main CEE currencies that you need to pay attention to. These are Hungarian Forint (HUF), Polish zloty (PLN), Czech koruna (CZK), AND Romanian leu (RON).
BRICS is the name of a group of countries with influence in the international economy. They are Brazil, Russia, India, Indonesia, China, and South Africa.
These counties are today’s new high-growth emerging economies.