The foreign exchange market quotes prices in pairs. Every price expresses the value of one currency in terms of another, which immediately introduces a classification problem. Participants need a shared language to distinguish the most traded, most liquid relationships from the rest. The labels major pairs and minor pairs serve this purpose. They are conventions grounded in turnover, market infrastructure, and the role of the United States dollar as the primary vehicle currency. Understanding the distinction clarifies how liquidity is organized, how quotes are constructed, and why certain pairs dominate transaction flows.
Currency Pairs and Quote Conventions
A currency pair is quoted as a base currency and a quote currency. In EUR/USD, the euro is the base and the dollar is the quote. A price of 1.1050 means one euro costs 1.1050 dollars. For most non‑yen pairs, prices are typically displayed to four or five decimal places. Yen pairs often display to two or three decimals because one yen is much smaller than one unit of most other major currencies. The smallest commonly referenced price increment is a pip, which corresponds to 0.0001 for most pairs and 0.01 for yen pairs. These conventions matter for how participants describe spreads, slippage, and transaction costs.
Pairs exist because currencies are relative prices. There is no absolute price of a currency in isolation, only its exchange rate with another. The classification into majors and minors orders this set of relative prices by typical liquidity, trading volume, and infrastructural support.
What Are Major Pairs
Major pairs are the most heavily traded currency pairs that include the United States dollar on one side. They reflect deep global usage of the dollar and the central role of a small group of large, advanced economies. In market practice, the set of majors includes:
- EUR/USD
- USD/JPY
- GBP/USD
- USD/CHF
- USD/CAD
- AUD/USD
- NZD/USD
Market participants sometimes present slightly different lists, but the common thread is the presence of USD and a counterpart from a highly traded, investment grade currency. These pairs typically concentrate the largest share of daily spot, forward, and swap turnover, and they benefit from the tightest spreads in many venues under normal conditions. That liquidity tends to hold through most hours of the global trading day, with peaks around the London and New York sessions.
Major pairs are not defined by an exchange or a regulator. The labels emerged from market convention and are reinforced by turnover data, prime brokerage capacity, central clearing and settlement services, and the ubiquity of price streams from dealers and electronic communication networks.
What Are Minor Pairs
Minor pairs, commonly called crosses, are currency pairs composed of two non‑USD currencies. Because they exclude the dollar, they represent non‑dollar exchange relationships such as EUR/GBP, EUR/JPY, GBP/JPY, AUD/JPY, EUR/AUD, EUR/NZD, GBP/CHF, CAD/JPY, and many others. They are “minor” by convention because they handle a smaller share of global turnover than the major USD pairs, and because liquidity in many crosses depends on the liquidity of their major leg components.
In a cross like EUR/JPY, many dealers build prices from EUR/USD and USD/JPY quotes. The relationship is approximately multiplicative: the price of EUR/JPY is EUR/USD times USD/JPY, subject to rounding and transaction costs. Large, frequently traded crosses also have direct order flow and dedicated market making. Even for those crosses, the synthetic relationship through their USD legs remains a key reference, which helps keep pricing consistent across venues and reduces arbitrage gaps.
Why the Distinction Exists
The split between major and minor pairs has historical, institutional, and practical roots.
First, the dollar’s global role. According to the Bank for International Settlements Triennial Survey in 2022, the dollar was on one side of the vast majority of foreign exchange transactions. The dollar dominates trade invoicing for many commodities, appears widely in cross-border debt and bank funding, and serves as a primary reserve asset for central banks. These real economy and financial linkages channel demand into USD pairs, producing concentrated liquidity across the major pairs listed earlier.
Second, market infrastructure evolved around the most used pairs. Data vendors, interdealer platforms, and prime brokerage lines prioritize the deepest markets. Settlement services such as CLS focus on currencies and pairings with sufficient scale and risk controls. This infrastructure reduces settlement risk, improves netting efficiency, and enables tighter spreads. The result is a feedback loop in which the most traded pairs attract even more standardized tooling and connectivity.
Third, pricing efficiency. Using a vehicle currency allows participants to transform one currency into another through an intermediate step with minimal additional cost when liquidity is abundant. A corporation in Canada that needs euros might sell CAD for USD, then USD for EUR, because the USD legs are highly liquid. In many cases, a direct cross like EUR/CAD is also liquid, but the vehicle approach remains embedded in market systems and risk management.
Where Majors and Minors Fit in Market Structure
Foreign exchange is an over-the-counter market. Prices are made by banks and nonbank liquidity providers who stream quotes to clients and to interdealer venues. The structure is layered. Dealers hedge client trades in the wholesale market, aggregate risks across books, and manage inventory. Majors sit at the core of this network. They are the pairs in which dealers most readily offset risk, where electronic order books are thick, and where clearing and settlement pipelines are most standardized.
Minors connect this core to the periphery. Some crosses are very active, for example EUR/JPY or EUR/GBP during European and Asian hours. Others are thinner and derive prices synthetically from their USD legs. Liquidity can vary throughout the day with time zones, macroeconomic releases, and local holidays. For the same nominal transaction size, a cross often entails less depth at the quoted price than a major, which can translate into wider spreads and more variable slippage during volatile periods.
Exotics sit beyond the minors in common taxonomy. Exotic pairs typically involve a major currency against the currency of a smaller or emerging economy, such as USD/TRY or EUR/ZAR. Their liquidity tends to be more episodic, and spreads are usually wider than in minors. The presence of exotics helps highlight why majors and minors are grouped together. Both categories involve advanced economy currencies with broad international usage, although the dollar anchors the major set.
Turnover and Liquidity Characteristics
Liquidity can be described by depth, resiliency, and breadth. Depth refers to how much volume can be transacted near the quoted price. Resiliency refers to how quickly prices recover after a shock. Breadth refers to participation across venues and time zones. Major pairs typically exhibit strong scores on all three dimensions. Minors exhibit more variation. Popular crosses have robust two-way flow during their active sessions, but depth can thin out during off-peak hours.
Spreads tend to correlate with these features. In highly electronic venues and stable conditions, major pairs often show tight quoted spreads, sometimes well below a single pip. Minors generally show somewhat wider spreads, although the difference can shrink when two highly active regions overlap. For example, EUR/JPY liquidity is often strongest when European and Asian market participants are active at the same time.
These differences do not imply that minors are inherently riskier or that majors are always cheaper to trade. They indicate how liquidity is typically distributed. Transaction cost outcomes depend on size, timing, market conditions, and the quality of execution routes, not solely on the major or minor label.
How Prices in Crosses Relate to USD Legs
A useful property of minor pairs is their link to the USD legs through triangular relationships. If a dealer quotes EUR/USD and USD/JPY, those quotes imply a range for EUR/JPY that is consistent with no-arbitrage bounds after accounting for spreads and fees. Dealers and electronic systems continuously monitor and align these relationships. When markets are orderly, the implied cross from the USD legs and the directly traded cross align closely.
This linkage matters for risk management. A dealer who sells EUR/JPY can hedge by buying EUR/USD and selling USD/JPY in appropriate sizes. Even if the desk also has direct EUR/JPY access, the USD legs are the deepest hedging channels for many institutions. The cross label therefore signals information about how risk is likely to be warehoused and offloaded within the market-making community.
Economic Roles Behind Major and Minor Pairs
Major pairs mirror large, liquid economic relationships. EUR/USD reflects the transatlantic trade and capital market footprint. USD/JPY captures Japan’s role in global manufacturing, savings, and investment. GBP/USD is influenced by the United Kingdom’s financial sector linkages and trade patterns. USD/CHF and USD/CAD reflect distinct safe-haven and North American trade dynamics, while AUD/USD and NZD/USD link to commodity export structures in Australia and New Zealand.
Minor pairs tend to concentrate regional and bilateral stories. EUR/GBP often captures shifts within Europe’s economic balance. EUR/JPY and GBP/JPY connect European and Japanese cycles with strong time-zone effects. AUD/JPY has long served as a barometer for Asia-Pacific growth narratives in the public commentary because it links a commodity exporter to a major Asian economy. None of these associations guarantees any particular price behavior. They summarize the kinds of flows that often operate in the background: import and export invoicing, portfolio allocation, and cross-border funding and hedging.
Real-World Context and Examples
Corporate Treasury
Consider a United States manufacturer that buys components invoiced in euros. The treasury team faces recurring EUR cash outflows. Many firms neutralize exchange rate uncertainty by aligning euro receipts and payments or by using financial contracts that reference EUR/USD. If the firm needs to convert dollars to euros on settlement dates, it typically deals in EUR/USD because that pair is highly liquid. If the supplier were in the United Kingdom instead, the relevant pair would likely be GBP/USD for the same reasons.
Now consider a Japanese electronics firm that sources parts from the euro area. Its operating currency is JPY, its payable currency is EUR. The firm can transact directly in EUR/JPY, which is an active cross, or it can work through USD legs if that suits its banking relationships and systems. The decision is often administrative and infrastructural as much as financial. Pricing for EUR/JPY will reflect both the direct cross market and the implied cross from EUR/USD and USD/JPY, keeping quotes aligned.
Institutional Portfolio Management
An asset manager buying European bonds on behalf of a Canadian client might wish to separate the asset and currency exposures. The currency overlay could be implemented using EUR/CAD directly if liquidity and internal processes support it, or by combining EUR/USD and USD/CAD legs. In either case, the reasoning behind major and minor pairs shapes the available execution routes and the monitoring of hedge effectiveness over time.
Tourism and Retail Transactions
A traveler from Australia visiting Japan implicitly faces AUD/JPY. Behind the scenes, payment processors and banks often settle flows through USD legs because of established corridors and netting efficiencies. The traveler does not see these details, but they help explain why AUD/JPY rates are well behaved relative to the USD legs and why retail pricing updates more quickly in some corridors than others.
Session Effects and Time-Zone Liquidity
Foreign exchange is global, but market activity is not uniformly distributed across the 24-hour day. The London session is the largest hub, followed by New York, with significant activity in Tokyo and other Asian centers. Majors tend to maintain substantial liquidity across these sessions, with peaks when London overlaps with either Asia or New York. Minors often show more pronounced session patterns. JPY crosses can be more active during Asian hours, while EUR crosses become most liquid during the European day.
Session effects connect back to the classification because they influence how quickly prices adjust to news and how much size can be executed at the displayed spread. A headline released during a quiet session for a given cross can produce larger price gaps than the same headline during an active session, even if both relate to the same economy.
Data, News Flow, and Market Attention
Macroeconomic data and policy communications disproportionately reference the economies behind the majors. The Federal Reserve, European Central Bank, Bank of Japan, Bank of England, Swiss National Bank, Bank of Canada, Reserve Bank of Australia, and Reserve Bank of New Zealand anchor the monetary policy cycle for the currencies in the major set. News vendors and analytics platforms accordingly prioritize these currencies with timely releases, forecasts, and rate path scenarios.
Minor pairs are still influenced by these same drivers, but through a bilateral lens. EUR/GBP reacts to differences in euro area and UK outlooks. EUR/JPY reflects the interaction between European conditions and Japanese policy settings. The cross emphasizes the relative story because neither currency is the dollar. When the dollar itself experiences a broad repricing, crosses can move as the USD legs transmit the shift into the non‑USD relationship.
Transaction Costs and Market Conventions
Differences between major and minor pairs appear in several conventions that matter for execution quality and operational planning, independent of any trading strategy.
- Quoted spreads and depth: Majors typically show tighter displayed spreads and deeper available size at the top of book under normal conditions. Minors show more variation across venues and times of day.
- Roll and forward points: Forward pricing reflects interest rate differentials and settlement conventions. The mechanical process is the same for majors and minors, but quote frequency and depth tend to be greater in majors.
- Settlement and holidays: Spot settlement for most pairs falls two business days after the trade date, adjusted for currency holidays. Some pairs have idiosyncratic calendars. Cross participants must track both currencies’ holiday schedules, which can result in value date differences relative to the USD legs.
- Reference data and analytics: Historical data density and vendor coverage are typically richest in majors. Crosses may have shorter histories in some datasets or fewer contributors for real-time quotes.
These features stem from the same underlying forces that define the categories. They do not imply that one must use majors rather than minors, only that the market has built more standardized pipelines and data coverage around the majors.
Common Misconceptions
One misconception is that minor pairs are simply derivatives of majors with no independent liquidity. Several crosses, including EUR/JPY, EUR/GBP, and GBP/JPY, have deep, active markets in their own right. Dealers stream direct prices, and clients transact size directly in the cross. The USD legs still serve as reference points and hedging channels, which is not the same as saying the cross is secondary or artificial.
Another misconception is that majors are uniformly stable while minors are uniformly volatile. Volatility depends on macroeconomic conditions, geopolitical events, and market regime shifts. There are periods when a major pair experiences sustained large moves, and periods when a cross trades in narrow ranges. The labels summarize typical market structure attributes, not guaranteed behavior.
How the Classification Guides Communication
The labels major and minor also standardize communication. Analysts, journalists, and policymakers can convey a great deal by referencing a pair’s category. A comment that liquidity was strained in a minor cross tells readers to expect wider spreads and more variable depth than in a major pair. A reference to heavy flows in majors suggests broad-based activity tied to the dollar. This common language helps align expectations across diverse participants, from central banks to corporates to retail service providers.
Examples of Market Narratives Across Pairs
To illustrate how the same macro story can show up differently across the categories, consider a hypothetical period with rising interest rates in the United States relative to the euro area and Japan. Major USD pairs might display dollar strength against EUR and JPY as rate differentials widen. In crosses, the effect appears as a relative move between EUR and JPY based on how each currency co-moves with USD through its respective major. If USD strengthens more against the yen than against the euro, EUR/JPY might rise, even if both EUR/USD and USD/JPY are moving because of dollar developments. The cross captures the relative imprint of the same global shock.
A second example involves a regional growth surprise in the United Kingdom relative to the euro area. EUR/GBP is the cleanest pair to observe that bilateral shift. GBP/USD and EUR/USD will both reflect it too, but their moves also blend in dollar-specific dynamics. The cross isolates the regional comparison by removing USD from the equation.
Interpreting Market Data and Surveys
Regular industry surveys and official statistics provide context for the major and minor distinction. Turnover shares reported in the BIS Triennial Survey show the dollar on one side of the vast majority of trades, and they list the most active currency pairs. These data justify why the market treats certain pairs as major. They also show that many crosses are highly active and that activity shifts over time with structural changes in trade, finance, and market technology.
Market structure evolves. Electronic market making by nonbank firms has increased, internalization of client flow has grown, and new venues have entered the ecosystem. These changes can tighten spreads in both majors and minors and can alter where liquidity concentrates during specific hours. The major versus minor classification adapts to these developments because it reflects realized trading patterns rather than a fixed rulebook.
Practical Orientation Without Strategies
Participants who work with currency data or exposures should be aware of the implications of the classification for operations, analytics, and communication. Data coverage is often deeper for majors, which can simplify historical analysis. Crosses may require more attention to holiday calendars and value dates because two non‑USD calendars interact. Session effects are more pronounced in many minors, which can affect when prices update and how quickly markets absorb news. These points relate to market plumbing, not to strategies or predictions.
Summary of the Conceptual Map
Major versus minor pairs is a convention that encodes three facts. First, the dollar’s global role concentrates liquidity and standardization in USD pairs. Second, non‑USD crosses inherit both direct liquidity and synthetic pricing from their USD legs, with variation across time zones and venues. Third, the classification helps organize thinking about market depth, spreads, and operational details, without implying any specific trading approach.
Key Takeaways
- Major pairs are the most traded USD pairs, reflecting the dollar’s role as the primary vehicle currency and the depth of associated market infrastructure.
- Minor pairs, or crosses, link two non‑USD currencies and often derive pricing alignment from their USD legs, even when the cross has direct liquidity.
- The distinction fits into the broader OTC market structure by signaling where depth, spreads, and settlement pipelines are most developed.
- Real-world flows from trade, investment, and hedging give majors and minors their characteristic patterns across sessions and venues.
- The labels summarize typical liquidity and operational features, not predictions about volatility or guidance on trading decisions.