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Major currency pairs are currencies that shape global trade as they are widely used across the world, and their economies are stable and steadily growing.
There are a few currencies that are widely used by most traders and countries. Generally, they are stronger currencies and are a part of millions of transactions every day in the Forex market. Almost every Forex trader uses one of these major currencies due to the safety and security they provide.
Majors such as EUR/USD, GBP/USD, or USD/JPY are highly liquid and well traded in the Forex market. They are also less volatile when compared to the minor currencies, commodities, and most volatile currency pairs, which can see severe price changes and fluctuations take place in a short space of time.
If you are taking your first steps into the world of trading, then it is crucial for you to get a good grasp of the fundamentals of major currency pairs. In this guide, we will be explaining these fundamentals, as well as the gains you can expect when trading these pairs, and what trading strategies are recommended for them.
After completing this guide, you should know the following:
Major currency pairs in the Forex market include those currencies that are traded the most around the world each day. These currencies are backed by strong and stable economies, and their values define the prices of the other currencies in the Forex market.
These currency pairs are traded by the vast majority of Forex traders and include the US Dollar, Euro, British pound, Swiss franc, and Japanese yen. These currencies belong to the strongest economies in the world and are considered the safest currencies to trade with.
There is a huge number of traders who are buying and selling these currencies in the Forex market every day, which makes them very liquid and available, with relatively low volatility.
The major currency pairs in Forex usually have stable values. However, they may fluctuate after a financial announcement or some impactful event in their respective local economies, rather than a geopolitical or external event. Thus, they are strong enough to set market rules.
One major currency can be paired with another major currency to have a major currency pair, or paired with a less-common currency to create an exotic currency pair.
There are a few major currencies that can define the Forex market. These are USD, GBP, EUR, JPY, and CPH. Among the major currencies, the USD and the JPY were once the driving force of the global economy.
However, currently, the EUR/USD is the most traded pair around the world. The five major currencies in Forex are as follows.
The EUR/USD pair is the most traded in the Forex market. It is defined by the strongest economies in the world, and the quoted price of this pair is speculated upon by millions of traders around the world.
The value of this pair changes very slightly. Between 2017 and 2022 it has changed by a mere 8%, with one short-term increase to 18% in 2018. The speculation around this pair relates to the monetary policies of the European Central Bank and the economic situation in Europe.
Meanwhile, on the other side of the pond in the United States, the Federal Reserve interest rates and non-farm payroll reports bear sway on the market price of this pair, causing it to slightly fluctuate up and down.
This currency pair, or as traders like to call it the Fiber, is defined by another major player in the global economy, which is the British pound.
The daily volatility of this pair averages around 0.61%, which makes it quite safe for traders as there are no major price fluctuations. The price of this pair increased only 8% between 2017 and 2022.
The price of this pair relies on the interest rates in the US as well as the economic growth of the UK and the interest rates set by the Bank of England. It is worth noting that this pair witnessed some major fluctuations due to Brexit.
This currency pair is defined by two stable economies and were at one point considered the main major currencies in the world. Both economies have set their interest rates low, and are financially stable.
However, the Japanese economy is always facing the risk of being hit by sudden natural disasters, with the most recent example being the tsunami that hit the country in 2016, causing wide fluctuations in the pair. While on the American side, announcements about the non-farm payrolls and changes in the interest rates can generally have an impact on the value of this pair.
Outside of any unexpected natural events or major economic changes, this pair, also called “Ninja”, only fluctuates around 0.55% on average, which is quite low even among major currencies.
This pair, also called the “Swissie”, is considered a safe haven by most Forex traders. The low-interest rates in Switzerland along with the economic stability of the country make the CHF one of the safest currencies to trade with.
The price changes and fluctuations with this pair are mainly caused by US economic and political events, including unemployment and interest rates. Political events in the US also affect this pair, an example of which can be found in the US presidential elections of 2021.
The average volatility for this pair is around 0.52%, making it quite a safe pair to trade in the long term.
Major currencies are the product of strong and stable economies, all the previously mentioned currencies have financial stability and growth. Therefore, any fluctuation in their price is caused by internal decisions such as interest rates, inflation rates, and unemployment statistics.
Central banks of these major currencies set low-interest rates, which does not cause great diversions between the five major currencies, and they witness almost similar figures in terms of economic growth, unemployment, and inflation rates.
Political instability may also impact these currencies. However, these countries rarely witness any major political turmoil, we can only name a few cases like the US presidential race in 2021, and the UK's announcement of Brexit in 2016.
This stability in the major currency pairs encourages many Forex traders around the world to trade with these currencies. Additionally, it is easier to predict the upcoming price tendencies of these currencies, most traders speculate on the future price movement after every announcement.
When more traders are interested in trading these major currencies, high liquidity is created, which makes it easy for traders to execute buy or sell orders almost instantaneously.
Therefore, you will find that Forex brokers always offer these major currencies with the smallest spread or trading fees.
The low volatility associated with the major pairs in Forex trading provides a small gain margin for traders. For this reason, if you want to make significant gains from majors, you will need to use a large contract size.
Most Forex brokers offer huge leverage for trading major currencies in Forex. Trading on margin can help the trader improve their market position, and potentially receive more gains. However, leverage is always a double-edged sword, if the trade unexpectedly turns against you, then you will quickly lose your trade, and possibly become indebted to the broker.
Trading major pairs might seem simple, due to the fact that there are fewer associated risks, but you still need to go in with a solid trading strategy if you hope to make a good return. The main risk when trading major pairs is not making enough gains to offset the broker’s trading fees or spread.
Therefore, you should always have a good trading strategy to guide you. These strategies can include day trading, range trading, swing trading, and position trading. Let's now take a brief look at each of them.
Traders may buy and sell one or more major currencies in one trading day, which means entering the market at the beginning of the day and closing out their position by the end of it.
However, the Forex market operates 24 hours during the working week, but most day traders call it a day 8 hours from the time they start trading.
Since most major currencies have tiny price changes in the short-term, day trading gives a longer time window to accommodate more price changes, giving the trader some time to hopefully close out the trading session with some significant pip changes.
Forex traders can use range trading with major currencies to identify the patterns of price increase or decrease. Using range trading, you can enter the market when the major pair is oversold and expected to start moving upwards.
Similarly, you can find the overbought level when the pair price is expected to rebound and decline, then you can sell your position, or open a selling position.
Since major currencies are not highly volatile and do not include wide price changes, it is better to identify the upcoming price change and enter the market accordingly.
Swing trading entails opening a position for any major currency (or any other financial instrument) and keeping it for several days or even weeks. This way you maintain the position active overnight to grab any potential gains if the price moves in your favor.
Major currency traders who use swing trading do not pay attention to small changes. Since major pairs are not likely to severely decline, traders may close the position after several weeks and reap whatever gains the market position had.
Position trading looks similar to swing trading - you keep the trade active for a few weeks or more. However, position trading can entail holding the market position for several months, or even years.
This way, traders are not affected by tiny price changes that happen for a few weeks. Rather, they hope that future events will affect the market price in their direction, and it is going to be gainful for them.
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Because these are the currencies of the strongest economies in the world today, the US dollars and the Euro are also used for different transactions around the world which do not include their countries.
This pair is highly liquid because many traders use it in the Forex market, and all Forex brokers offer it, which justifies the tight spreads offered on these pairs by most brokers.
Internal economic changes and announcements can cause changes to the EUR/USD pair. Reports about economic growth, inflation, and interest rates impact the demand and supply status of this pair, which leads to the price of this pair changing over time.
There are 5 major currency pairs, and they are made up of the five major currencies of the strongest economies around the world. These are the US dollar, Euro, British pound, Japanese yen, and Swiss franc. These currencies are backed by stable economies that provide constant growth. Additionally, they impose almost matching monetary policies such as interest rates.