In the Forex Market, one currency is exchanged for another. This is the reason why Forex is quoted in currency pairs. The International Standards Organization (ISO) has set out the three-letter code for all currencies. In most cases, the first two letters are the same as the country’s name; where possible the third letter corresponds to the first letter of the currency name.
The eight most commonly traded currencies are: USD (U.S. dollar), EUR (euro), GBP (Great Britain pound), AUD (Australian dollar), JPY (Japanese yen), CHF (Swiss franc), CAD (Canadian dollar), NZD (New Zealand dollar).
These eight currencies form the seven major currency pairs, which account for over 85% of the daily traded volume in the Market:
1. EUR/USD: Euro versus U.S. dollar
2. USD/JPY: U.S. dollar versus Japanese yen
3. GBP/USD: Great Britain pound versus U.S. dollar
4. AUD/USD: Australian dollar versus U.S. dollar
5. USD/CHF: U.S. dollar versus Swiss franc
6. USD/CAD: U.S. dollar versus Canadian dollar
7. NZD/USD: New Zealand dollar versus U.S. dollar
Aside from these major pairs there are the so-called exotic currencies. Relatively low trading volumes, high volatility and high spreads characterize these currencies. Trading such pairs carries higher degrees of risk, and comparably higher profit potential.
The list of exotic currencies includes CZK (Czech Koruna), MXN (Mexican Peso), PLN (Polish Zloty), TRY (Turkish Lira), RUB (Russian Ruble) and others.
The high price volatility of these exotic currencies can definitely be exploited for profits, but it requires more skill and experience than the majors.