Lesson 9 – Currency Types
When we talk about currencies as forex traders, we tend to break them down into three categories:
Let’s look into what each category includes and what every trader should know about each.
Major Currencies in Forex
As we have mentioned a few times in the course so farm there are seven majors in Forex. To illustrate once more, there are:
- USD, The United States Dollar
- EUR, The Euro
- GBP, The Great British Pound Sterling
- JPY, The Japanese Yen
- AUD, The Australian Dollar
- CAD, The Canadian Dollar
- CHF, The Swiss Franc
Some people also include the NZD, New Zealand Dollar in this list aswell, but I personally consider it a minor.
As we have also mentioned earlier in the course, we only every trade in forex with currency pairs, not individual currencies.
So, A Major currency pair is any of the major currencies paired with the USD. Ex EUR/USD, GBP/USD. JPY/USD, AUD/USD, etc.
Therefore, as the USD cannot be paired with itself, we are left with 6 major currency pairs, or seven with the NZD.
You’ll find when trading that these six (or seven) pairs will always have nearly infinite liquidity due to the very high levels of trading volume due to the generally high levels of trade with the US as well as many traders, speculators, and investors interested in the USD currency pairings.
Minor Currencies in Forex
Minor currency pairs are any two currency pairs from the list above that are paired with each other, and not with the USD. ex JPY/GBP, GBP/EUR, etc.
Here is where there will be slightly less liquidity. But you will still find more than enough trading volume and liquidity in the minor pairs.
Look for countries that regularly trade with each other (ex. NZD/AUD, GBP/EUR) and you’ll find similar liquidity as with the majors.
Otherwise, you’ll find less liquidity and therefore currency pricing being a little less fluid and more jumpy.
Exotic Currencies in Forex
As you may have deduced, exotics are any other currency in the world that is not listed above. The exotic currencies are always traded in pairs with one of the currencies listed above. And most of the time that currency is the USD.
Usually, most exotic currency pairs have low volume, a larger spread, and can be very volatile and jumpy due to their low volume. Their markets have little depth and the price can move a large amount with a relatively small movement in politics, international relations, central bank announcements, investment bank trades, institutional trades, etc.
This volatility is precisely the reason that so many people love trading and specializing in exotics, as this is where you’ll find the big opportunities.
There are still many exotics with decent liquidity and higher volumes. They are the currencies with nations that are large economies that engage in a lot of national trade.
Here are the more popular exotics with decent liquidity:
- Norwegian Krone (NOK)
- Mexican Peso (MXN)
- Brazilian Real (BRL)
- Indian Rupee (INR)
- Singapore Dollar (SGD)
- Chinese Yuan (CNY)
- Turkish Lira (TRY)
- South Korean Won (KRW)
- South African Rand (ZAR)
- Danish Krone (DKK)
Each of these is worth studying and looking into on a consistent basis as this is where the unique trades are found.