The foreign exchange market (Forex) is the largest financial market in the world where all the world’s currencies can be traded. With trillions of dollars worth of currencies traded daily and across multiple continents, the Forex market continues to provide traders with many profitable opportunities. In this article, we will take a look at secondary forex pairs, the most popular trading pairs, and how to trade them.
What are secondary forex pairs?
When the national currencies of two countries are paired together and traded in the foreign exchange market, we refer to them as currency pairs.
A currency pair – for example, EUR/GBP – consists of the base currency on the left (in this case, the Euro) and the quote currency on the right (in this example, the British Pound).
All currency pairs available today can be classified into three categories: major forex pairs, minor forex pairs, and exotic forex pairs.
Minor Forex pairs simply refer to currency pairs that are not linked to the US dollar and are also known as cross currency pairs.
The most popular forex pairs
The most popular forex pairs traded are EUR/JPY, GBP/JPY, EUR/GBP, AUD/JPY, EUR/AUD, and EUR/CHF.
Minor Forex pairs fall into this category because their daily trading volume is lower than major Forex pairs. However, they still have enough liquidity to make them attractive trading pairs.
EUR/JPY represents approximately 3.93% of the total daily trading volume in the foreign exchange market, followed by GBP/JPY at 3.57% and EUR/GBP at 2.78%.
Although these percentages may seem small, minor currency pairs still account for billions of dollars in trading volume on a daily basis.
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How to trade micro forex pairs
Image is for illustrative purposes only
Before we discuss the basics of how to trade penny forex pairs, let’s first take a look at what the quoted prices for a currency pair look like on a chart, and what it means for each currency when prices move up or down.
Following the example of the EUR/JPY chart above, when prices fall, the value of the Euro will fall relative to the Japanese Yen (red arrow). The opposite is true when prices rise – for example, the value of the euro will rise compared to the Japanese yen (green arrow).
The published prices for the currency pair are shown on the right axis of the chart (black arrows).
Let’s say the EUR/JPY pair is trading at 139.00, for example – all this means is that it would cost 139.00 JPY to buy 1 EUR (EUR).
Image is for illustrative purposes only
The second example on the chart shows the bid and ask prices for the EUR/JPY pair (on the right side of the image), indicating the best potential prices at which the EUR/JPY pair can be bought or sold at that time.
When it is time to place a trade, the trader will first open an order box (similar to the one above) via the broker’s platform. The second step will be to determine the price at which you want to buy or sell the currency.
Third, the trader must know the right order type to use, and finally the position size. Once all these factors are taken into consideration, the order can be placed via your broker’s platform and the order will become active, if accepted by the market.
The chart image below shows an example of what a trading position would look like.
Image is for illustrative purposes only
Our final chart image shows an open long position on EUR/JPY with the blue horizontal line representing the price level at which EUR/JPY was bought.
The number 1000 indicates the position size, and the green and orange horizontal lines represent the take profit and stop loss levels.
For this trading position to become profitable, the EUR/JPY would need to move above the buy level. However, if the price moves down instead, the position will turn negative, and the trader will start losing money.
Please note that the example above may differ in appearance from your broker’s platform. With most trading platforms, it is also possible to see these order levels within the Trade and Order panel (not shown in the example).
conclusion
Although minor forex pairs account for a lower volume of total daily trading volume than major forex pairs, they are still heavily traded and are very popular among forex traders.
With so many forex pairs available today, there are almost unlimited trading opportunities. We hope this article has helped shed some light on the minor forex pairs and the most popular pairs that you may want to check out when making your next trade.
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