Forex: majors, minors and exotics
In Forex there are hundreds of currency pairs, but they split into three categories with very different characteristics: majors, minors and exotics. Knowing which you\'re in tells you what liquidity, spread and risk to expect, and which to trade for your level.
The majors: the kings
The "majors" are the most traded pairs in the world, all against the dollar: EUR/USD, GBP/USD, USD/JPY, USD/CHF, and a few others. They have the highest liquidity, the tightest spreads, and the "cleanest" moves. They concentrate the bulk of global volume. They\'re the best place to start.
The minors (crosses)
The "minors" or crosses are pairs between important currencies WITHOUT the dollar: EUR/GBP, EUR/JPY, GBP/JPY, etc. They have good liquidity but somewhat less than majors, slightly wider spreads, and some (the yen ones) quite a bit of volatility. They\'re a step beyond, for when you master the majors.
The exotics: dangerous terrain
The "exotics" combine a major currency with one from an emerging or minor market: USD/TRY (Turkish lira), USD/ZAR (South African rand), EUR/PLN, etc. They have LOW liquidity, VERY wide spreads, extreme volatility and event risk (political crises, interventions). They offer big moves but are treacherous. They\'re not for beginners.
Why the category matters
The category determines your cost and risk. Trading a major is cheap (tight spread) and relatively predictable. Trading an exotic is expensive (wide spread that eats your profit) and risky. Many beginners lose in exotics, drawn by their volatility, without understanding that the spread and event risk play against them.
Where to start
Start and stay a good while in the majors, especially EUR/USD (the world\'s most liquid and lowest-spread). Once you master the majors, explore the minors carefully. And leave the exotics for when you have experience and good risk management: their extreme volatility doesn\'t forgive mistakes.