Major vs Minor Currency Pairs: What Travelers and Traders Should Know

Introduction

Whether you are planning an international trip or dipping your toes into forex trading, understanding currency pairs is essential. The foreign exchange market trades over 7.5 trillion dollars daily, making it the largest financial market in the world. But not all currencies are created equal - some dominate global trade while others remain regional players.

This guide breaks down the differences between major, minor, and exotic currency pairs, explains how liquidity💡 Definition:How quickly an asset can be converted to cash without significant loss of value affects the rates you receive, and provides practical tips for both travelers and traders.

What Makes a Currency Major vs Minor?

The classification of currencies into major, minor, and exotic categories depends on several factors.

Major Currencies

Major currencies 💡 Definition:Equity represents ownership in an asset, crucial for wealth building and financial security.share💡 Definition:Stocks are shares in a company, offering potential growth and dividends to investors. these characteristics:

• High liquidity: Traded in massive volumes daily
• Stable economies: Backed by countries with strong, stable economies
• Reserve currency status: Held by central banks worldwide as foreign exchange reserves
• Tight spreads: Minimal difference between buy and sell prices
• Global acceptance: Widely accepted for international transactions

Minor Currencies

Minor currencies (also called cross currencies) have these traits:

• Moderate liquidity: Lower trading volumes than majors
• Regional importance: Significant in their geographic areas
• Wider spreads: Slightly higher transaction costs
• Developed economy💡 Definition:Frugality is the practice of mindful spending to save money and achieve financial goals. backing: Still from stable, developed nations

Exotic Currencies

Exotic currencies come from emerging or developing economies:

• Low liquidity: Significantly lower trading volumes
• Higher volatility💡 Definition:How much an investment's price or returns bounce around over time—higher volatility means larger swings and higher risk.: More prone to large price swings
• Wide spreads: Much higher transaction costs
• Political and economic risk: Greater exposure to instability

The 8 Major Currencies and Why They Dominate

The eight major currencies account for approximately 90 percent💡 Definition:A fraction or ratio expressed as a number out of 100, denoted by the % symbol. of all forex trading volume:

Note: Percentages total more than 100 percent because each trade involves two currencies.

Why These Currencies Dominate

US Dollar (USD): The world primary reserve currency. Oil, gold, and most commodities are priced in dollars. The US has the largest economy and deepest financial markets.

Euro (EUR): The official currency of 20 European nations with a combined GDP second only to the US. Created in 1999, it quickly became the second-most traded currency.

Japanese Yen (JPY): Japan status as the third-largest economy and the yen role in carry trades keeps it dominant.

British Pound (GBP): London historical role as a global financial center and the UK economic strength maintain the pound major status.

Commodity Currencies (AUD, CAD, NZD): These currencies correlate with commodity prices.

Swiss Franc (CHF): Switzerland legendary political neutrality and banking stability make the franc a safe haven currency during global uncertainty💡 Definition:Risk is the chance of losing money on an investment, which helps you assess potential returns..

Major Currency Pairs

Major pairs always include the US dollar on one side:

A pip is typically the fourth decimal place in forex quotes (0.0001), except for JPY pairs where it is the second decimal place (0.01).

Minor Currency Pairs (Cross Rates)

Minor pairs do not include the US dollar but feature other major currencies:

Exotic Currency Pairs and Their Challenges

Exotic pairs combine a major currency with one from an emerging economy:

Popular Exotic Pairs

Challenges of Trading Exotic Pairs

1. Wide Spreads: While EUR/USD might have a 1-pip spread, USD/TRY could have 50+ pips
2. Low Liquidity: Fewer market participants mean prices can jump unexpectedly
3. High Volatility: 5-10 percent moves in a single day are not unusual during crises
4. Information Asymmetry: News may not reach international traders as quickly
5. Capital Controls: Some countries restrict currency movements

How Liquidity Affects Exchange Rates

Liquidity - the ease of buying or selling without affecting the price - directly impacts the rates you receive.

High Liquidity Benefits

• Tighter spreads: Less difference between buying and selling prices
• Better execution: Orders fill at expected prices
• Price stability: Large orders do not move markets significantly
• Continuous trading: 24-hour markets with minimal gaps

Low Liquidity Drawbacks

• Wider spreads: Higher transaction costs
• Slippage: Orders may execute at worse prices than expected
• Price gaps: Prices can jump between levels, especially overnight
• Manipulation risk: Larger players can influence prices

Practical Impact

For Travelers: Converting USD to EUR at an airport might cost 2-3 percent in fees. Converting USD to Thai Baht in a rural area might cost 8-10 percent.

For Traders: A major pair trade might cost $10 in spreads on a $100,000 position. An exotic pair trade could cost $500+ on the same size.

Best Currencies for Travelers to Carry

Universally Accepted Currencies

1. US Dollar: Accepted almost everywhere, even where not the official currency
2. Euro: Preferred throughout Europe and beyond
3. British Pound: Strong acceptance in Commonwealth countries

Regional Recommendations

Europe: Carry Euros for Eurozone countries. For UK, Switzerland, Sweden, and Norway, you will💡 Definition:A will is a legal document that specifies how your assets should be distributed after your death, ensuring your wishes are honored. need local currencies.

Asia:

• Japan: Cash-heavy society, carry yen
• Thailand, Vietnam, Philippines: USD widely accepted for larger purchases
• Singapore, Hong Kong: Cards widely accepted, but local currency is best
• China: Yuan increasingly necessary; digital payments dominate

Americas:

• Canada: CAD required, USD accepted in tourist areas at poor rates
• Mexico: USD accepted in tourist zones, MXN gives better rates
• South America: USD preferred for savings, local currency for daily use

Middle East:

• UAE, Saudi Arabia: USD and local currency equally useful
• Local currencies often pegged to USD

Africa:

• South Africa: ZAR only, except in extremely touristy areas
• East Africa: USD preferred for safaris and hotels
• North Africa: Local currency and Euros both useful

Tips for Carrying Currency

1. Avoid airport exchanges: Worst rates in the world
2. Use ATMs abroad: Usually best rates, but watch for fees
3. Notify your bank: Avoid frozen cards abroad
4. Carry backup: Do not rely solely on cards
5. Small bills matter: $50 and $100 USD bills get better rates than smaller ones in many countries
6. New bills preferred: Some countries reject worn or marked US bills

Currency Conversion💡 Definition:When merchants abroad offer to charge your card in your home currency instead of local currency, usually with hidden markup of 3-7%. Tips for Different Regions

Developed Markets (US, EU, UK, Japan, Australia, Canada)

• Credit and debit cards offer the best rates
• ATMs provide competitive exchange rates
• Avoid dynamic currency conversion (pay💡 Definition:Income is the money you earn, essential for budgeting and financial planning. in local currency, not home currency)
• Airport and hotel exchanges are convenience-priced

Emerging Markets (Mexico, Thailand, South Africa, etc.)

• Mix of cash and cards recommended
• Negotiate prices in local currency
• Street rates may beat bank rates (but be cautious)
• Count money carefully before leaving exchange counters

Frontier Markets (Cambodia, Myanmar, many African nations)

• US dollars often preferred to local currency
• Bring clean, new bills
• Small denominations essential for change
• ATM availability may be limited

Digital Alternatives

• Wise (formerly TransferWise): Excellent rates for international transfers
• Revolut: Multi-currency card with good rates
• Charles Schwab Debit: Refunds all ATM fees worldwide
• PayPal: Convenient but often poor exchange rates

Understanding Cross Rates

When direct exchange between two currencies is not readily available, cross rates come into play.

How Cross Rates Work

If you want to convert Brazilian Real (BRL) to Thai Baht (THB), there likely is not a direct BRL/THB market. Instead:

1. BRL converts to USD: BRL/USD rate
2. USD converts to THB: USD/THB rate
3. Final rate: BRL/THB = (BRL/USD) x (USD/THB)

Cross Rate Example

• You have 1,000 BRL
• BRL/USD = 0.20 (1 BRL = $0.20 USD)
• USD/THB = 34.50 (1 USD = 34.50 THB)
• Cross rate: 1 BRL = 0.20 x 34.50 = 6.90 THB
• Final amount: 1,000 BRL = 6,900 THB

Why Cross Rates Matter

Cost implication: Each conversion step incurs spreads. Converting BRL to USD to THB means paying spreads twice.

Rate volatility: Cross rates can move faster because they combine movements in two separate markets.

Arbitrage opportunities: Skilled traders watch for discrepancies between direct rates and calculated cross rates.

Conclusion

Understanding the difference between major, minor, and exotic currency pairs helps you make smarter decisions whether you are exchanging money for travel or trading in the forex market.

Key Takeaways:

• Major pairs offer the best rates and most stability
• Minor pairs provide good trading opportunities with moderate costs
• Exotic pairs carry higher risks and costs but also potential rewards
• Liquidity drives costs: The more traded a currency, the better your rates
• Travelers should stick to major currencies when possible and use ATMs over airport exchanges
• Cross rates add costs, so direct conversion is usually better

Ready to convert currencies? Use our currency conversion tools for real-time rates on all major, minor, and exotic pairs. From USD to EUR to USD to THB, we have got you covered with accurate, up-to-date exchange rates.