Minor currency pair

What is Minor currency pair in forex and CFD trading

A minor currency pair, also frequently called a cross currency pair, is any currency pair that does not include the US Dollar (USD) but consists of two major world currencies. Examples of a minor currency pair include EUR/JPY, GBP/AUD, and EUR/GBP. These pairs matter for real trading decisions because they offer unique opportunities to capitalize on the relative economic disparity between two non-US economies, but their lower trading volume leads to wider spreads and higher execution costs compared to major pairs. A trader can verify a minor currency pair by checking their broker’s Market Watch list, selecting a currency pair, and confirming that neither the base nor the quote currency is the USD.

Key facts about Minor currency pair

• Composition: A minor currency pair is formed by pairing two of the major non-USD currencies: EUR, GBP, JPY, AUD, CAD, and CHF.
• Alternative Name: These pairs are commonly referred to as Cross currency pairs because they require an implicit conversion through the US Dollar (USD) in the interbank market.
• Typical Spreads: Spreads on a minor currency pair are generally wider than majors, typically ranging from 1.0 to 3.0 pips for high-volume cross pairs during active hours.
• Liquidity: Liquidity is lower than in major pairs, which can result in larger price movements, higher susceptibility to slippage, and increased execution risk during fast market conditions.
• Volume: Minor currency pairs account for a smaller percentage of global forex turnover compared to major pairs, reducing market depth.
• Direct Trade: Trading a minor currency pair allows a trader to execute a direct exchange between two non-USD currencies, bypassing the need for two separate USD transactions.

How Minor currency pair works in forex and CFD trading

A minor currency pair operates by establishing an exchange rate between two currencies without direct reference to the US Dollar, although its price is still derived from the respective major pairs.

The calculation process involves these sequential steps:

• Implicit Conversion: The interbank market calculates the cross rate using the USD as an intermediary, even if the USD is not displayed in the pair (e.g., EUR/JPY = EUR/USD × USD/JPY).
• Market Depth Reduction: Because two separate trades involving the USD are implicitly necessary to facilitate the trade, the total pool of liquidity for the minor currency pair is shallower than the liquidity for its constituent major pairs.
• Wider Spreads: The reduced competition and higher operational risk for liquidity providers lead to wider bid-ask spreads than seen on major pairs, increasing trading costs.
• Volatility Aggregation: The price movement of a minor currency pair aggregates the volatility of both of its constituent major pairs, often resulting in larger and less predictable price swings.
• Pip Value in Quote: As with all pairs, PnL is initially calculated in the quote currency of the minor currency pair (e.g., JPY for EUR/JPY).

Example of Minor currency pair with a real trade

This example illustrates the transaction cost associated with trading a minor currency pair.

Result: Zero commission structure means only spread cost impacts profitability. The 1,800 JPY spread cost requires a 1.8 pip market movement to break even, demonstrating how institutional-grade spreads without per-trade commission fees optimize minor pair trading.

How Minor currency pair affects your cost and risk

The lower liquidity of a minor currency pair increases trading cost via wider spreads and elevates risk through increased susceptibility to market gaps and slippage, particularly during news events or the Asian trading session.

Minor currency pair compared with related concepts

Minor currency pair vs Major currency pair

A minor currency pair is less liquid and trades with wider spreads because it does not include the US Dollar, whereas a major currency pair includes the USD and offers significantly tighter spreads and better execution quality due to its large trading volume.

Minor currency pair vs Exotic currency pair

The minor currency pair involves two developed economy currencies, offering moderate volatility and manageable spreads, whereas an exotic currency pair includes a currency from an emerging market, resulting in significantly higher volatility, substantially wider spreads, and greater political or economic risk.

Broker differences in Minor currency pair across the industry

Brokers vary in the pricing and execution priority given to a minor currency pair compared to majors, primarily reflected in the width and consistency of the spread.

How to verify Minor currency pair on your trading platform

To verify the attributes of a minor currency pair like GBP/JPY on the MetaTrader 4 (MT4) platform, follow these mechanical steps:

• Locate Symbol and Confirm No USD: Open the Market Watch window in MT4 and locate the GBP/JPY symbol, confirming that neither currency is USD.
• Check Live Spread Width: Right-click on the GBP/JPY symbol and select Spread to display the live spread in pips, which should be visibly wider than the spread on EUR/USD.
• Verify Stop Level Distance: Open the New Order window and check the Stop Level distance (minimum distance for stops/limits), which will typically be set at a higher value than for a major pair.
• Observe Price Action on Low Timeframe: Navigate to the Chart for GBP/JPY and switch to a 1-minute timeframe, observing how frequently price updates and the average size of the price action gaps between candles.

Sanity check: If the live spread on GBP/JPY during the London session is consistently above 1.0 pips, this confirms its status as a typical minor currency pair with lower liquidity.