Forex Basics 5 – What are the most traded currency pairs on the forex market
There are seven major currency pairs in the foreign exchange market. Other common trading pairs include Cross and Exotic currency pairs, which have fewer transactions and relatively low liquidity (that is, not easy to convert into cash).
Major currency pairs
Major currency pairs are the most commonly traded currencies, accounting for nearly 80% of the transaction volume in the foreign exchange market.
These currency pairs may generally have low volatility and high liquidity.
They are associated with stable, well-managed economies, are less susceptible to manipulation than other currency pairs, and have smaller spreads.
Cross currency pairs – Crosses – are pairs that do not include the USD.
Historically, Cross was first converted to USD and then to the required currency, but now liquidity providers and banks offers direct exchange.
The most common transactions are from secondary currency pairs; they are usually less liquid and more volatile than major currency pairs.
Exotic Currency Pairs
Exotics are currencies from emerging or smaller economies that are paired with major currencies.
Compared to Crosss and Majors, Exotics are more risky because they are less liquid, more volatile and more susceptible to manipulation.
They also have larger spreads and are more sensitive to sudden changes in political and financial development.