Major Currencies and Trading Systems
Not all currencies are equal. A handful of major currencies account for the vast majority of global Forex volume. This chapter profiles each major, explains cross-currency relationships, and examines the two primary trade execution methods: broker-intermediated and direct dealing.
The Major Currency Pairs
Seven currencies dominate Forex trading and are called the 'majors'. All majors are quoted against the US Dollar (USD), which appears in over 88% of all trades (BIS 2022 data).
EUR/USD — 'The Fibre': Most traded pair globally. Driven by ECB vs Federal Reserve policy divergence, Eurozone growth differentials, and risk sentiment.
USD/JPY — 'The Gopher': Heavily influenced by Japanese monetary policy (historically ultra-loose), US Treasury yields, and risk-off flows into the yen.
GBP/USD — 'Cable': Named after the transatlantic telegraph cable that transmitted prices in the 19th century. Sensitive to UK economic data and BoE policy.
USD/CHF — 'The Swissie': CHF is a safe-haven currency. Rises in uncertainty often see USD/CHF fall as investors buy francs.
USD/CAD — 'The Loonie': Correlated with oil prices given Canada's export-driven economy.
AUD/USD — 'The Aussie': Tracks commodity prices (iron ore, copper) and China's economic outlook.
NZD/USD — 'The Kiwi': Smaller pair, sensitive to dairy prices and RBNZ policy decisions.
- USD involved in 88%+ of all Forex transactions (BIS 2022)
- EUR/USD is the most liquid pair — tightest spreads globally
- JPY is a safe-haven currency; yen strengthens during market stress
- Commodity currencies (CAD, AUD, NZD) correlated to raw material prices
| Pair | Nickname | Share of Volume | Key Driver |
|---|---|---|---|
| EUR/USD | Fibre | ~23% | ECB/Fed policy divergence |
| USD/JPY | Gopher | ~17% | BoJ yield curve control |
| GBP/USD | Cable | ~11% | BoE policy, UK data |
| AUD/USD | Aussie | ~6% | Commodities, China growth |
| USD/CAD | Loonie | ~5% | Oil prices |
| USD/CHF | Swissie | ~5% | Safe-haven flows |
| NZD/USD | Kiwi | ~4% | Dairy prices, RBNZ |
QWhy is USD/JPY sensitive to US Treasury yields?
Trade Execution — Brokers vs Direct Dealing
Forex trades are executed through two main channels.
Voice / Electronic Brokers: Brokers match buy and sell orders between banks without acting as principal. Historically this was done by phone; today platforms like EBS (Electronic Broking Services) and Reuters Matching handle the bulk of interbank flow electronically. Brokers earn a commission on each trade rather than a bid-ask spread.
Direct Dealing: Banks trade directly with one another (or with large corporate clients) via bilateral agreements. The market-making bank quotes a two-way price; the counterparty hits the bid or lifts the offer. Reuters Dealing and Bloomberg's FXGO platform are widely used.
Prime Brokerage: Large hedge funds and asset managers access interbank liquidity through a prime broker, which extends credit and consolidates settlement.
For retail participants, FX brokers provide access via margin accounts, typically offering leverage of 30:1 (EU regulated) to 500:1 (offshore). The broker either acts as a market-maker (taking the other side of client trades) or as a straight-through processing (STP) conduit to interbank liquidity.
- Interbank brokers: match buyers and sellers, earn commission, no principal risk
- Direct dealing: bilateral quotes, market-maker takes principal risk on spread
- EBS and Reuters Matching are dominant interbank electronic platforms
- Retail brokers: market-maker or STP model; leverage varies by jurisdiction