The Forex market is the most actively traded market in the world. It is true that most of that liquidity is attributed to Major currency pairs such as EUR/USD, GBP/USD, USD/JPY, and others. Minor pairs are very important for getting more trading opportunities.
Minor pair definition
Minor currency pairs are made of strong currencies and the pair does not include US Dollar.
Why is understanding Minor pairs important for traders?
- While major currency pairs are very attractive for trading, the number of pairs to choose from is limited. Adding Minors to your watchlist can increase your trading opportunities.
- Trading Minor pairs can be a sensible option when US Dollar valuation gets unpredictable.
- Investing in Minor pairs can help you diversify your trading portfolio and hedge risks by investing in negatively correlated currencies.
Thorough Minor pair Explanation
Minor pairs are also referred to as cross-currency pairs. These pairs are coming from developed countries and are backed by strong economies and central banks. Currencies that make Major pairs are coming from developed countries as well. And you might be wondering what’s the difference between Majors and Minors? The main difference is that one pair in Majors is US Dollar, whereas Minors can have multiple variations such as EUR/JPY, GBP/CHF, and more. In addition, Major pairs are traded more. At any given moment, Majors have higher trading volume and more orders are filled daily. As a result, Minor pairs are less liquid than Majors and therefore are characterized by larger spreads. On the other hand, Minors are more liquid than Exotic pairs and there’s a wide range of information on Minors available on the internet to help conduct an analysis to predict the future prices.
Minor pairs can be a great addition to your portfolio as they can help diversify your risks, offer more trading opportunities and help hedge against certain currency pairs.
Example of Minor pairs in Forex
As already mentioned, Minor currency pairs consist of Major currencies but do not include US Dollar. Among the major currencies Euro, British Pound, and the Japanese Yen are the most traded ones and therefore Minor currency pairs that are made out of those currencies are more liquid than others. You can see the examples of Minor currency pairs below:
- EUR/JPY – Euro vs Japanese Yen
- EUR/GBP – Euro vs British Pound
- GBP/JPY – British Pound vs Japanese Yen
- GBP/CAD – British Pound vs Canadian Dollar
- CHF/JPY – Swiss Franc vs Japanese Yen
- EUR/AUD – Euro vs Australian Dollar
- NZD/JPY – New Zealand Dollar vs Japanese Yen
FAQs on Minor pairs in Trading
What determines prices of minor currency pairs?
There are a lot of factors that are in play when determining the currency price. It’s obvious that fundamentals and technicals play the biggest role when investors are predicting future prices. What’s more, Forex trading is conducted over the counter, which means that in order to get the best possible prices, you need to find a broker that has a wide range of liquidity providers.
How many minor currency pairs are there?
Minor currency pairs are also known as cross currency pairs. There can be a large number of minor currency pairs as the many cross currency combinations can be made out of the minor and some major currencies.