Forex trading is a popular method of investing that involves the buying and selling of currencies. In order to make informed decisions about trading, it is important to understand the concept of majors and crosses in forex.
Majors are the most commonly traded currency pairs in the forex market. These pairs include the US dollar and another major currency such as the Euro, British pound, Japanese yen, Swiss franc, Canadian dollar, or Australian dollar. The major currency pairs are also known as the “big six” because they make up around 80% of the forex market.
The majors are considered to be the most liquid and stable currency pairs in the market. This is because they are traded in high volumes and are widely used in international trade and commerce. As a result, they offer traders a lower risk compared to other currency pairs.
The major currency pairs are also known for their tight spreads, which is the difference between the bid and ask price of a currency pair. Tighter spreads allow traders to enter and exit trades at lower costs, which can increase profitability.
Examples of major currency pairs include EUR/USD (Euro/US dollar), GBP/USD (British pound/US dollar), USD/JPY (US dollar/Japanese yen), USD/CHF (US dollar/Swiss franc), USD/CAD (US dollar/Canadian dollar), and AUD/USD (Australian dollar/US dollar).
Crosses, on the other hand, are currency pairs that do not include the US dollar. Crosses are also known as minor currency pairs, and they are usually less liquid and have wider spreads compared to the majors.
Crosses are created by pairing two major currency pairs together. For example, the EUR/JPY (Euro/Japanese yen) is a cross between the EUR/USD and USD/JPY currency pairs. Other examples of crosses include GBP/JPY (British pound/Japanese yen), EUR/GBP (Euro/British pound), and AUD/NZD (Australian dollar/New Zealand dollar).
Crosses are often used by traders who are familiar with the two major currency pairs that make up the cross. For example, a trader who is experienced in trading the EUR/USD and the USD/JPY may choose to trade the EUR/JPY because they are familiar with the behavior of both currency pairs.
Crosses also offer traders the opportunity to diversify their portfolio and take advantage of market opportunities. For example, if the EUR/USD is in a downtrend and the USD/JPY is in an uptrend, a trader may choose to buy the EUR/JPY if they believe that the Euro will strengthen against the Japanese yen.
In conclusion, majors and crosses are important concepts in forex trading. The majors are the most commonly traded currency pairs and offer traders lower risk and tighter spreads. Crosses, on the other hand, are pairs that do not include the US dollar and are created by pairing two major currency pairs together. Traders should understand the behavior of both majors and crosses in order to make informed trading decisions.
