Majors, minors and exotics
Learning objectives
Classify any currency pair as a major, a minor or an exotic
Explain why crosses and exotics carry wider spreads than majors
Weigh the specific costs and risks that come with moving down the liquidity ladder
Majors
Hundreds of currency pairs are quotable. They fall into three tiers, and the tier tells you almost everything about what trading one will cost and how it will behave.
The majors are the pairs that include the US dollar on one side. There are seven in common usage:
Pair
Nickname
EUR/USD
Fibre
USD/JPY
Gopher
GBP/USD
Cable
USD/CHF
Swissy
AUD/USD
Aussie
USD/CAD
Loonie
NZD/USD
Kiwi
Between them they account for the large majority of global forex turnover, and EUR/USD alone is the single most traded instrument in any market anywhere.
What that buys you: the tightest spreads available, the deepest liquidity, the least slippage, and the most orderly behaviour. It also means the most analysis, the most news coverage and the most participants watching the same levels.
Minors and crosses
Minors are pairs of major currencies that don't include the dollar. EUR/GBP, EUR/JPY, GBP/JPY, AUD/JPY, EUR/CHF.
They're also called crosses, and the name explains the cost.
Because the dollar sits on one side of most interbank flow, a price for EUR/GBP is often derived from EUR/USD and GBP/USD rather than quoted directly with the same depth. You're effectively crossing two markets, and the spread reflects both.
What that costs you: wider spreads than majors, typically by a meaningful multiple. Less predictable behaviour, since the pair responds to news from two economies without the dollar's stabilising presence.
What it can give you: a cleaner expression of a view. If you think the euro will outperform the pound specifically, EUR/GBP says exactly that. Trading it via two dollar pairs means two positions, two spreads and dollar exposure you didn't want.
One warning. GBP/JPY and other yen crosses have a reputation for violent movement, and it's earned. They can move several times what EUR/USD does in a session. That is not a feature for someone learning to size positions.
Exotics
Exotics pair a major currency with one from a smaller or emerging economy. USD/TRY, USD/ZAR, USD/MXN, USD/SGD, EUR/PLN.
The appeal is obvious: they move more. So does everything else about them.
Spreads can be many multiples of a major's. On some exotics the spread alone is larger than a typical daily range on EUR/USD, which means the trade starts a long way behind.
Liquidity is thin and unreliable. It's adequate during the relevant local session and can thin out sharply outside it. Thin liquidity means slippage, and slippage means the stop you set is not the price you get, as Stop losses: where to set them and why explained.
Central bank intervention is a live risk. Emerging market central banks intervene in their own currencies more often and more forcefully than major ones do, and they don't announce it in advance.
Swap costs can be severe. Large interest rate differentials mean holding an exotic overnight can cost significantly more than a major, in one direction, every night. On a position held for weeks this compounds into a real number.
Gap risk is higher. Political events, capital controls and credit downgrades produce moves that jump straight past resting orders.
The ladder
Majors
Minors
Exotics
Liquidity
Deepest
Good
Thin (depends on trading session)
Spread
Tightest
Wider
Widest
Slippage risk
Lowest
Moderate
High
Overnight swap
Modest
Modest to high
High
Gap and intervention risk
Low
Low to moderate
High
The pattern is consistent. Every step down the ladder buys movement and pays for it in cost, reliability and the trustworthiness of your stop.
Which should you trade?
For anyone still building a process, the answer is majors, and probably one or two of them.
Not because exotics are forbidden, but because the arithmetic is unforgiving. A wider spread is charged on every round trip. Unreliable stops break the risk framework that everything in this academy depends on. And a pair that moves violently makes position sizing harder at exactly the point you're learning to do it.
Move down the ladder when your process is stable and you can state what a wider spread and less reliable execution will cost you. Not when the movement looks appealing.
Key takeaways
Majors include the US dollar and carry the tightest spreads, deepest liquidity and most orderly behaviour. EUR/USD is the most traded instrument in any market
Crosses exclude the dollar and are often priced through two dollar pairs, which is why their spreads are wider. They do express a specific view more cleanly
Exotics pair a major with an emerging market currency. Wide spreads, thin liquidity, intervention risk and potentially severe overnight swap costs
Every step down the ladder buys volatility and pays for it in cost, execution reliability and how much you can trust your stop