What Are Major Pairs?
These four major currency pairs are deliverable currencies and are part of the Group of Ten (G10) currency group. While these currencies contribute a significant amount of volume related to economic transactions, they are also some of the most heavily traded pairs for speculative purposes.
- The major currency pairs on the forex market are the EUR/USD, USD/JPY, GBP/USD, and USD/CHF.
- The four major currency pairs are some of the most actively traded pairs in the world, along with the so-called commodity currency pairs: USD/CAD, AUD/USD, and NZD/USD.
- The EUR/USD is by far the most heavily traded currency pair in the world and is popular among speculators due to its large daily volume.
Understanding the Major Pairs
The major pairs are considered by many to drive the global forex market and are the most heavily traded. Although it is widely regarded that the major pairs consist of only four pairs, some believe that the USD/CAD, AUD/USD, and NZD/USD pairs should also be regarded as majors. These three pairs can be found in the group known as the "commodity pairs."
The five currencies that make up the major pairs—the U.S. dollar, euro, Japanese yen, British pound, and Swiss franc—are all among the top seven of the most traded currencies as of 2021.
- The EUR/USD is the world's most heavily traded currency pair, representing more than 20% of all forex transactions.
- The USD/JPY is a distant second place, followed by the GBP/USD, and the USD/CHF with a small share of the global forex market.
More than half of trades in the forex market involve the U.S. dollar.
Due to their commodity-based economies, trading volumes in the USD/CAD, AUD/USD, and NZD/USD will often exceed those in the USD/CHF, and sometimes the GBP/USD.
Why Traders Trade the Major Pairs
Volume tends to attract more volume. This is because with more volume, spreads between the bid and ask price tend to narrow. The major pairs have lots of volume. They thus tend to have smaller spreads than exotic pairs and attract the most traders to them, which keeps the volume high.
High volume also means that traders can enter and exit the market with ease, with large position sizes. In lower volume pairs it may be more difficult to sell or buy a large position without causing the price to move significantly.
High volume means more people willing to buy or sell at a given time, too, resulting in a smaller chance of slippage, or smaller slippage when it does occur. That is not to say large slippage can't happen in major pairs. It can, although much less so than in thinly traded exotic pairs.
How Are Prices of the Major Pairs Determined?
The currencies of the major pairs are all free-floating, meaning their prices are determined by supply and demand. Central banks may step in to control the price, but typically only when it is necessary to prevent the price from rising or falling so much that it could cause economic harm.
Supply and demand are affected by economic or fundamental conditions in each country, interest rates, future expectations for the country/currency, and current positions—positions that need to be exited at some point.
Example of a Major Pair Price Quote and Fluctuation
Currency prices are constantly changing—especially the majors since there are so many participants putting through orders every second—with the current rate shown via a currency quote.
The price for the EUR/USD may be 1.15, which means it costs $1.15 to buy €1. If the rate moves up to 1.20, that means the euro has increased in value because it now costs more dollars, $1.20, to buy €1. If the rate drops to 1.10, it costs less USD to buy a euro, so the US dollar has increased in value or the euro has fallen in value.
The chart above shows a snapshot of the EUR/USD rate. On the left, the price of the EUR/USD is rising, which means the euro is appreciating versus the US dollar. On the right, the price is falling as the euro declines in value relative to the US dollar.