In order to become well versed in Forex trading, one of the basic pieces of information you need to know is what are the major pairs in Forex trading and what it means to “trade the majors”. The most popular currency pairs are called the majors, and there are some differing opinions as to whether there are 4 major pairs or 6. There is no official list so you can either look to the top 4 or the top 6. Either way, the top 6 pairs are the ones to watch to see where the entire Forex market is moving and the detail of whether you call the last two pairs majors is not all that significant. The reality is that the major pairs, or the most commonly traded pairs make up an overwhelmingly large percentage of the total Forex market, even though there are hundreds of currency pairs traded every day.
It is not at all surprising that the most commonly traded pairs of currency are those from the strongest economies in the world. The largest economies have the largest amount of goods and services that are using their currency and as a result these currencies are in higher demand. There is also an element of historical and political stability in these currencies. The governments of the countries with commonly traded currency are usually strong and powerful in the world arena. The US dollar is a component in the top 4 currency pairs for this reason. The US dollar is traded more often because commodities prices are quoted in USD. The USD is also the chosen currency of most reserve banks around the world.
The most often traded Forex pair is the EUR/USD pair. Since these are the two largest economic entities in the entire world, their currencies are traded most often. This pair is extremely liquid and as a result offers low bid-ask spreads. The high volume of trading means this pair is very volatile and there is a lot of room for profit over a short period of time.
The next most commonly trade Forex currency pair is USD/JPY. The US dollar and the Japanese Yen are traded often because Japan is the largest economy in Asia and the second largest national economy. The tremendous economic growth that has occurred over the last several decades in Japan has made their economy very strong and makes this pair also both liquid and volatile. The Yen is often considered the marker for what is happening in the asian economy.
After these 2 pairs, the next major currency pairs are the GBP/USD pair and the USD/CHF pair. Both Great Britain and Switzerland are important economies to watch and are major economic entities which do not use the Euro as their currency of choice. Like the other major pairs we have discussed, the spreads are tight making them an excellent choice for Forex traders, both new to the market and at the expert level.