The “majors” and the “exotics”

In forex trading “parlance” there are 6 “major” trades, they comprise over 70% of trading:-

€ / US$; 28.2%

US$/ JPY; 16.7%

£ / US$; 13.8%

A$ / US$; 5.1%

US$/ C$: 4.4%

US$/ SwF; 4.0%

Other trades involving the US$ account for 16.5% of trading.

 “Minor” currencies are usually those of developing countries including Russia, Brazil, South Korea, Malaysia, Mexico. The annual traded volumes of these currencies are around 6-10x annual the respective GNP. 

“Exotic” currencies are currencies that are thinly traded outside their own countries. The Thai baht is a good example of a currency traded mainly between neighbouring countries reflecting physical trade in goods. The Thai baht considered exotic because it trades only low volumes in international markets.

The difference between trading the majors and the exotics is largely in the “spread”. For the very liquid majors, the spread ie the difference between the buying and selling price is very small. However for the exotics, the difference between buying and selling price can be quite large.

The size of the spread is a key factor. For an investor to profit, the position has to “get though the spread” i.e. move in the investors favour by an amount larger than the spread. Hence it is easier to profit from engaging in major trades than in the exotics.