What Are Major, Minor and Exotic Pairs

Three rings around the dollar

Every currency pair belongs to one of three rings, and the rings are drawn around the US dollar. In the centre are the majors: the dollar against another big currency — the euro, the pound, the yen, the franc, the Australian and Canadian dollars. These are the most-traded pairs in the world. Around them are the minors, also called crosses: two big currencies with no dollar between them, like the euro in pounds or the euro in yen. On the outside are the exotics: a big currency against a small one — the Turkish lira, the South African rand, the Polish zloty — traded by far fewer people.

What changes from ring to ring

Three things change as you move outward. The gap between the price you buy at and the price you sell at — the spread, which is what a trade costs to open — is thin in the centre and wide at the edge, because the majors have the most buyers and sellers at every moment and the exotics the fewest. The day gets wilder: a small currency's price jumps more, and jumps further, than a big one's. And the overnight charge grows, because the small currencies carry high interest rates, and the gap between the two rates is what the nightly swap is made of.

Here is the first of those three on one pair from each ring, at the same moment, as a retail broker might quote them. The euro against the dollar: 1.15872 to sell, 1.15881 to buy — a pip is the fourth decimal place, so the gap is 0.9 of a pip. The euro in pounds, a minor: a gap of a pip and a half. The dollar in Turkish lira, an exotic: 41.2500 to sell, 41.2800 to buy, a gap of three hundred pips. One lot — 100,000 units of the first currency — costs nine dollars of spread to open on the first booth and hundreds on the third.

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