Minor Pairs
Minor pairs are currency pairs in the foreign exchange market that do not include the US dollar (USD) as one of the two currencies, typically pairing major currencies like the euro, British pound, or Japanese yen against each other.
Quick Definition Box
Minor pairs, also known as cross pairs or crosses, are forex instruments that exclude the USD. They offer traders exposure to non-dollar economies and often exhibit different volatility patterns and spread costs compared to major pairs like EUR/USD or USD/JPY. Examples include EUR/GBP, GBP/JPY, and EUR/CHF.
Detailed Explanation
In the forex market, currency pairs are categorized into three main groups: majors, minors, and exotics. Minor pairs sit in the middle, providing a bridge between the highly liquid major pairs and the more volatile, less liquid exotic pairs. The defining characteristic of a minor pair is the absence of the US dollar. Instead, these pairs consist of two major currencies from the world’s largest economies: the euro (EUR), British pound (GBP), Japanese yen (JPY), Swiss franc (CHF), Australian dollar (AUD), New Zealand dollar (NZD), and Canadian dollar (CAD).
The most commonly traded minor pairs include EUR/GBP (euro vs. British pound), EUR/JPY (euro vs. Japanese yen), GBP/JPY (British pound vs. Japanese yen), EUR/CHF (euro vs. Swiss franc), and GBP/CHF (British pound vs. Swiss franc). Some definitions also include AUD/JPY, NZD/JPY, and CAD/JPY, though these are sometimes grouped with "commodity crosses" due to their ties to resource-based economies.
The liquidity of minor pairs varies significantly. EUR/GBP and EUR/JPY are among the most liquid minors, with tight spreads during peak European and Asian trading hours. In contrast, pairs like GBP/NZD or AUD/CHF can have wider spreads and less consistent liquidity, especially outside their respective regional sessions. For example, during the London session (08:00–16:00 GMT), EUR/GBP might have a spread of 1.5–2.5 pips on a standard account, while GBP/NZD could see spreads of 5–10 pips or more.
Minor pairs are priced using the same quoting conventions as majors. A quote of EUR/GBP = 0.8500 means 1 euro buys 0.8500 British pounds. The pip value for minor pairs depends on the pair’s denomination. For pairs where the quote currency is the yen (e.g., GBP/JPY), one pip is typically 0.01 yen. For pairs where the quote currency is a non-yen currency (e.g., EUR/GBP), one pip is 0.0001 of that currency.
The volatility of minor pairs can differ markedly from majors. GBP/JPY, known as the "dragon" among traders, is famous for its sharp, sudden movements. A single economic data release from the UK or Japan can move GBP/JPY by 50–100 pips in minutes. In contrast, EUR/CHF has historically been less volatile due to the close economic ties between the Eurozone and Switzerland, though the Swiss National Bank’s policy actions can create sudden spikes.
Real-World Example
Consider a trader analyzing EUR/GBP. The current price is 0.8575, meaning 1 euro equals 0.8575 British pounds. The trader expects the euro to strengthen relative to the pound due to a stronger-than-expected Eurozone manufacturing PMI report.
The trader decides to buy 1 standard lot (100,000 units) of EUR/GBP at 0.8575. The value of one pip for this trade is calculated as follows: 100,000 × 0.0001 = 10 GBP. Since the account is denominated in USD, the trader would need to convert that pip value to USD using the current GBP/USD rate. If GBP/USD is 1.2500, then 10 GBP = 12.50 USD per pip.
The trade moves in the trader’s favor, and EUR/GBP rises to 0.8625, a gain of 50 pips. The profit is 50 pips × 12.50 USD/pip = 625 USD. However, if the trade had moved against the trader by 50 pips, the loss would be 625 USD.
Now compare this to a major pair like EUR/USD. For the same 1 standard lot, one pip is worth 10 USD directly (since USD is the quote currency). The spread on EUR/USD might be 0.8 pips, while the spread on EUR/GBP might be 1.8 pips. The wider spread on the minor pair means the trader starts with a larger immediate cost.
Why It Matters for Traders
Minor pairs provide diversification benefits. A trader who only trades USD-based pairs is heavily exposed to US economic data, Federal Reserve policy, and dollar sentiment. By adding minor pairs, a trader can gain exposure to the economic cycles of Europe, the UK, Japan, and Switzerland independently of the dollar.
Minor pairs also offer unique trading opportunities during specific sessions. EUR/GBP sees its highest liquidity during the London session overlap (08:00–16:00 GMT), while JPY crosses like EUR/JPY are most active during the Asian session (00:00–09:00 GMT). Traders who focus on a particular time zone may find minor pairs more suitable than majors that require 24-hour monitoring.
The volatility of certain minor pairs, particularly GBP/JPY, can appeal to traders seeking larger price swings. However, this volatility also means wider stop-losses and higher margin requirements. For example, a 100-pip daily range on EUR/USD might be considered normal, while GBP/JPY can easily move 150–200 pips in a single session.
Minor pairs also have different correlation patterns. EUR/CHF often moves inversely to risk sentiment, while AUD/JPY tends to correlate with global equity markets. Understanding these relationships can help traders build more robust strategies.
Common Misconceptions
Misconception 1: Minor pairs are always less liquid than majors. While this is generally true, some minor pairs like EUR/GBP and EUR/JPY have liquidity comparable to less-active major pairs during their respective peak hours. The key is trading during the right session.
Misconception 2: Minor pairs have no relationship to the US dollar. Minor pairs are indirectly influenced by the dollar because their underlying currencies are often traded against the dollar. For example, if the USD strengthens broadly, EUR/USD and GBP/USD both fall, which can cause EUR/GBP to move in unexpected ways due to the relative strength of the euro versus the pound.
Misconception 3: Minor pairs are only for advanced traders. While some minor pairs like GBP/JPY require careful risk management due to volatility, others like EUR/CHF can be suitable for intermediate traders. The key is understanding the specific pair’s behavior rather than treating all minors as a single category.
Misconception 4: The spread is the only cost difference between majors and minors. In addition to wider spreads, minor pairs may have higher swap rates (overnight interest) due to interest rate differentials between the two currencies. For example, if the Bank of England has a higher rate than the European Central Bank, holding a long GBP/JPY position overnight could earn positive swap, while a short position would incur a cost.
Related Terms
How XM Compares
XM offers a broad range of minor pairs across its account types, including EUR/GBP, GBP/JPY, EUR/JPY, EUR/CHF, and AUD/JPY. Spreads on these pairs vary by account type (Standard, Micro, or Zero) and market conditions. During major economic releases, spreads on minor pairs may widen temporarily. XM provides transparent spread information on its platform, and traders should verify current conditions directly on the official XM website or trading platform. As with all forex trading, leverage and margin requirements for minor pairs follow standard industry practices, with margin calculations based on the pair’s volatility and the trader’s chosen leverage level.
Compliance Footer
⚠️ This glossary entry is educational. Forex/CFD trading carries high risk and can result in the loss of your entire investment. This is not investment advice. Past performance does not guarantee future results. Always conduct your own research and consider your risk tolerance before trading.
See all glossary entries: /en/glossary