Most Traded Currency Pairs

Forex trading (which stands for foreign exchange) is the conversion of one currency into another, which means that the currencies are traded in pairs. Trading currencies assists in predicting the future of the market and helps to make certain decisions. That's why exchange rate fluctuation between the two currencies is one of the factors which traders pay attention to when trying to make a profit.

Most traded pairs

FX trading helps to notice the changes in currency over a period of time: speculating when the currency goes up or down can help traders benefit from it. However, even though some traders only seek to make money, participating in forex market is useful for other reasons as well. The majority of the people recognise FX trading as means of buying any sort of commodities abroad. Forex trade comes in handy and is essential whenever an individual desires to purchase goods or services in different currency.

Consequently, the connection between the two currencies is a main factor in foreign exchange market. A currency pair is basically the value of one currency in relation to another. As currencies are always traded in pairs, the value of one currency is determined by comparing it to another. For instance, one of the major currency pairs, EUR/USD, represents what number of US dollars can be bought with one euro. And as the value of euro increases, the currency pair’s exchange rate also goes up. Because of this connection, traders focus on a particular group of currency pairs.

Currency pairs are divided in three categories: majors, which consist of the currencies that belong to the major countries paired with the US dollars; crosses that don’t contain the US dollar; and exotics, which are the currencies of the developing countries and economies, which means they’re volatile and risky to deal with.

Major currency pairs are definitely among the most traded currency pairs. All of the major pairs include one of the most significant currencies in the market – US dollar – either as a base or a quote currency. Some of the most actively traded pairs are:

EUR/USD Euro versus US dollar

The EUR/USD is considered to be the most traded pair, which accounts for 30% of all daily trades made in the FX market. US dollar and euro are dominant currencies in the world and represent two largest economies. A number of international organizations also manage its business in United States and Europe. A decision to trade EUR/USD requires to pay attention to news and a other factors concerning Eurozone and US. It creates some difficulties when trying to examine the pair and making strategies based on the two currencies. Yet, those are quite important aspects, because country’s economy, news and major events can all impact a currency pair. Yet, EUR/USD is an exceptionally active currency pair which is known for its daily trading volumes. Because of its liquidity and tight spreads even the beginners can take advantage of the trading possibilities that this stable EUR/USD pair offers.

USD/JPY US dollar vs Japanese yen

In Forex trading this pair is also referred to as a gopher and is considered the second most traded currency pair. As with every other pair, it’s important to consider the main aspects of Japanese economy in order to benefit from it. Japanese economy depends on imports and exports a lot, meaning it’s necessary to understand how central bank intervention, rising commodity prices, poor economic growth or low interest rates can affect the currency’s volatility and what could change in the future. One way or another, “gopher” can be characterized as a liquid and favorable currency pair, since traders can always expect some sort of trend reversals to occur and create opportunities in the market. However, for traders, it’s important to pay attention to the time zone differences and to know when the market is most active. It is recommended to follow Japanese economic releases, check volatility statistics regularly and avoid certain hours in a day.

GBP/USD British pound vs US dollar

Known as “cable” among the traders, the GBP/USD pair can be more volatile than other pairs in the majors group. GBP/USD value can fluctuate because of the external circumstances, such as difference in interest rates between the two banks, social situations and economic growth. Sudden price movements make trading quite complicated and risky in this case: there’s a chance to both lose and make a lot of money. This currency pair does not really suit newcomers, as it requires to prepare a definite trading plan and make quick decisions. Because of its liquidity it is the 4th most traded currency pair on the forex markets. Afterall, globally, pound belongs to a list of the top three most important reserve currencies and there’s a number of other reasons why GBP/USD pair is so popular. The United States and the United Kingdom have some similarities: they have huge single country markets while its banking systems make it an attractive pair to trade. “Cable” account for 9% of all daily trades made in the FX market.

USD/CHF US dollar vs Swiss franc

USD/CHF pair, also called “swissy” also belongs to the top most widely traded currency pairs in the world. US and Switzerland have strong investment and trade connections, resulting in this pair’s popularity. The main economic events that affect the USD/CHF include the actions made by central banks, particularly monetary policy: any events regarding interest rates, inflation or other factors can cause the USD/CHF exchange rate to move. The wage growth, unemployment rate or retail sales numbers can also indicate these changes. Moreover, it is worth observing economic activity in the Eurozone as well when trading USD/CHF, because Swiss National bank is actually connected and has a high correlation to the euro.

The three less popular pairs are:

  • AUD/USD Australian dollar vs US dollar "aussie"
  • USD/CAD US dollar vs Canadian dollar "loonie"
  • NZD/USD New Zealand dollar vs US dollar "kiwi"

These sort of pairs are traded most frequently because of a number of reasons.

Major currency pairs are liquid. Liquidity suggest how active the market is. Higher liquidity makes market less volatile, which means that the prices do not fluctuate that much. A liquid and less volatile market essentially means that the prices are more stable and more attractive to traders. Major pairs have low spread. Because of the high liquidity spread is usually always lower in major currency pairs. For example, it would be a lot more expensive to trade cross currencies as their liquidity is a lot weaker, meaning a trader has to pay more pips to enter each trade. The greater the trading volumes, the lower the transaction costs are and the tighter the spreads become. Major pairs belong to the major countries, secure governments and established central banks. It’s an already known fact that every major currency pair includes the US dollar. Besides that, it’s paired with the currencies of such countries as the United Kingdom, Europe, Switzerland, Australia or Japan. It basically means, that these countries have strong constantly evolving financial markets and foreign exchange actually plays an important role in everyday transactions there.

One of the largest financial markets in the world - Forex - is a valuable tool for both practical use and the purpose of earning money. Even though a variety of factors can influence currency exchange rates there are ways to foresee those changes when trading foreign currency pairs. These rapid movements are the ones that make the market so dynamic and liquid. Transactions performed every day are worth trillions of dollars, proving that a multitude of opportunities exist for forex traders. Yet, focusing on certain currency pairs that receive a biggest market share is a first step a beginner should take when entering the market.
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