Forex · Beginner · 4 min

Currency pairs: majors, minors, exotics

You can read a currency pair quote, tell majors, minors and exotics apart, and explain why spreads and risks differ between them.

Always a pair

In the stock market, you buy one share. In the currency market, you always do two things at once: buy one currency and sell another. That is why forex prices always come in pairs.

Reading a pair correctly is the first skill in forex. Knowing which group a pair belongs to tells you a lot about what trading it costs and how wildly it can move. This lesson covers both.

Majors, minors, exotics

A currency pair is written as two currency codes, such as EUR/USD. The first is the base currency, the second the quote currency. The price shows how many units of the quote currency one unit of the base costs. EUR/USD at 1.0850 means one euro costs 1.0850 dollars.

Buying EUR/USD means buying euros and selling dollars. It gains if the euro rises against the dollar.
Selling EUR/USD means the opposite.

Pairs are commonly grouped by how much they trade:

A major pair combines the US dollar with another of the most traded currencies, such as EUR/USD, USD/JPY or GBP/USD. These pairs have the deepest markets and the tightest spreads. The BIS survey shows the dollar on one side of 89% of all trades.
Minors, or crosses, combine major currencies without the dollar, such as EUR/GBP or EUR/JPY.
Exotics pair a major currency with one from a smaller or emerging economy. They trade less, have wider spreads and can jump sharply on political news or capital controls.

Regulators reflect these differences. When ESMA set leverage limits for retail CFDs in 2018, it allowed up to 30:1 on major currency pairs but only 20:1 on other pairs, because of their higher volatility.

1 pip vs. 50 pips

A fictional trader compares two pairs at a retail broker.

EUR/USD: bid 1.0850, ask 1.0851. The spread is one pip, the smallest common price step, as the next lesson explains.
An exotic pair: the spread is 50 pips, and the pair often moves by several percent in a week.

The same position size costs about fifty times as much to open in the exotic pair, before it has moved at all. In a calm market, the trader would need the exotic pair to move a long way just to cover the spread.

Common mistakes

Reading the pair backwards. The first currency is the one you buy when you buy the pair.
Ignoring spreads on exotics. They can make a strategy impossible from the start.
Treating all pairs as equally risky. Volatility and liquidity differ widely.
Forgetting the dollar's role. Many pairs move together because they all contain the dollar.

The takeaway

A pair shows how much of the second currency one unit of the first costs. Majors trade most and cheapest, exotics least and most expensively.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the group of pairs with the widest spreads.

Tap the chart.

Exotic pairs trade less, so order books are thinner and spreads wider, as in the lessons on liquidity.
2EUR/USD is quoted at 1.0850. What does that mean?

The first currency is the base. The quote shows how much of the second currency one unit of the base costs.
3You buy EUR/USD. What are you betting on?

Buying a pair means buying the base currency and selling the quote currency.
4Why are ESMA's leverage limits for retail CFDs lower on non-major pairs?

ESMA set 30:1 for major currency pairs and 20:1 for other pairs, reflecting higher risk.

of 4 correct.