What Currencies Can You Trade in the Forex Market?

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What Currencies Can You Trade in the Forex Market?
Source: Flickr/Jeaneeem
It is natural for forex traders to wonder if there is more to currency pairs than the most commonly traded ones. For example, could you trade the Estonia kroon against the Malagasy ariary (Madagascar’s currency)?

Generally speaking, the currency of any existing nation can be traded through a large broker. By extension, this means that a trade can be set up between two currencies, but it will likely need a major currency to set up the position - in this case, trade the kroon and the ariary using the U.S. dollar as an intermediary - which brings another element into the trade that keeps it from being a pure trade on the two target currencies.

The commonly traded currencies are split into three groups: majors, minors and crosses.

Major Forex Currencies

The most traded currencies are:

Major Currency Pairs

These currencies are paired together to create the group of currency pairs called the majors. These are:

  • Euro/U.S. dollar (EUR/USD)
  • U.S. dollar/Japanese yen (USD/JPY)
  • British pound/U.S. dollar (GBP/USD)
  • U.S. dollar/Swiss franc (USD/CHF)
  • Australia dollar/U.S. dollar (AUD/USD)
  • U.S. dollar/Canadian dollar (USD/CAD)

The AUD/USD and the USD/CAD are sometimes referred to as commodity pairs with the New Zealand dollar/U.S. dollar pair (NZD/USD).

Minors/Exotic Currency Pairs

In fact the NZD/USD is sometimes included among the majors, sometimes among the minors. The minors is a category that includes any currency outside of the most traded currencies we started with (again, the NZD is a bit of a enigma). These currencies are often paired and traded against the USD. Some of the minors that are from developing or emerging economies are referred to as exotics rather than minors, but the definition is the same.

The list of minors is huge, but some commonly traded ones include:

  • U.S. dollar/South African rand (USD/ZAR)
  • U.S. dollar/Mexican peso (USD/MXN)
  • U.S. dollar/Singapore dollar (USD/SGD)
  • New Zealand dollar/U.S. dollar (NZD/USD)
  • U.S. dollar/Turkish lira (USD/TRY)

Exotics may also trade against the euro or another major, as in (EUR/TRY)

Cross Currency Pairs

Crosses are major currency pairings that don’t involve the U.S. dollar. These are also referred to as cross currency pairs, and they include:

  • Australian dollar/Canadian dollar (AUD/CAD)
  • Australian dollar/Japanese yen (AUD/JPY)
  • Australian dollar/New Zealand dollar (AUD/NZD)
  • Swiss franc/Japanese yen (CHF/JPY)
  • Euro/Australian dollar (EUR/AUD)
  • Euro/Canadian dollar (EUR/CAD)
  • Euro/Swiss franc (EUR/CHF)
  • Euro/British pound (EUR/GBP)
  • Euro/Japanese yen (EUR/JPY)
  • British pound/Swiss franc (GBP/CHF)
  • British pound/Japanese yen (GBP/JPY)

Keeping It Simple

The major currency pairs and the cross currency pairs make up the vast majority of all forex trading. This means there are less than 20 pairs being traded in any large amounts. The advantage of sticking to these pairs is that they are liquid, so a trader experiences very little slippage or execution risk. That said, if you want to get in on the Estonian kroon, the forex market isn’t going to stop you - for your own good, however, make sure to consider liquidity issues when you are measuring the risks against the rewards of trading exotic currencies. (For more about risk and currency trading, check out Risk Management Basics for Forex Traders.)

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