The most commonly traded currency pairs in forex trading are the “majors,” which involve the US dollar paired with another primary global currency. However, there’s another category of currency pairs that, while not as frequently traded, can still offer significant opportunities to savvy traders. These are the minor forex currency pairs.
What Are Minor Forex Currency Pairs?
Minor forex currency pairs, also called cross-currency pairs or simply “crosses,” do not involve the US dollar. These pairs are called ‘minor’ not because they are less important but because they are traded less frequently than the major pairs.
Examples of Minor Forex Currency Pairs
Some of the most commonly traded minor forex currency pairs include:
- EUR/GBP (Euro/British Pound)
- EUR/AUD (Euro/Australian Dollar)
- GBP/JPY (British Pound/Japanese Yen)
- CHF/JPY (Swiss Franc/Japanese Yen)
The Euro/British Pound pair (EUR/GBP) is one of the most traded minor pairs due to the respective countries’ economic power and high liquidity.
Benefits of Trading Minor Forex Currency Pairs
As a forex trader, it’s important to keep minor pairs in your portfolio for a variety of reasons:
Diversification
Trading in minor forex currency pairs can provide excellent opportunities for diversification. Since these pairs do not involve the US dollar, they can move independently of the major pairs, which can be beneficial during periods of dollar weakness or volatility.
Opportunities for Profit
While minor pairs may not have the same volume as major pairs, they can still exhibit significant price movements. These movements can open up opportunities for potential profit, especially for traders who deeply understand the economies behind these currencies.
Challenges of Trading Minor Forex Currency Pairs
While trading minor forex currency pairs can be profitable, it also comes with certain challenges:
Higher Spreads
Because these pairs are less liquid than the majors, the spread (the difference between the buy and sell prices) can be higher. This can increase trading costs and potentially eat into profits.
Increased Volatility
Minor forex currency pairs can be more volatile than major pairs, increasing the risk of losses. However, with careful risk management, this volatility can also lead to significant profits.
Summary
Trading minor forex currency pairs can be a valuable part of a trader’s strategy, offering opportunities for diversification and potential profits. However, it’s essential to understand the increased risks of trading these less liquid pairs. Successful trading involves careful research, risk management, and a well-thought-out strategy.