Each country uses its own official currency. For example, for the United States it is the US dollar, for Great Britain it is the pound, and for Japan it is the yen. In the world of forex markets, different currencies are denoted by three-letter initials – USD, GBP, JPY, etc. The first two letters denote the country and the last letter usually denotes the name of the currency. It is easy to guess that USD comes from United States Dollar and GBP comes from Great Britain Pound.

The official currencies of two countries form a currency pair and are exchanged at a certain rate. Currency pairs are conventionally divided into three categories: majors, minors and exotics.

The major currency pairs are made up of the US dollar in combination with one of the other so-called major currencies (Euro, Japanese yen, British pound, Swiss franc, Canadian, Australian and New Zealand dollars). These are presented in the table below, together with their country of origin and the “nicknames” by which they are known in the forex community.

Major Currency Pairs

Table 1: Major Currency Pairs

The minors, also called crosses, do not include the US dollar. The minors are less frequently traded than the majors and therefore less liquid. For this reason, the costs of trading them are higher. The potential combinations of minor currency pairs are numerous. The most traded are the crosses including EUR, GBP or JPY (e.g., EUR/JPY, GBP/JPY, EUR/GBP).

The exotics are made up of one major currency and another, most often originating from emerging markets. Examples of such pairs are USD/THB (US Dollar/Thai Baht), EUR/TRY (Euro/Turkish Lira), GBP/MXN (British Pound/Mexican Peso). Given the lower trading volumes of exotic pairs, the costs of transacting in them can be significantly higher.

The most traded currency on the forex market is the US dollar and the most traded pair is EUR/USD.

 

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