What Are the Most Commonly Traded Currency Pairs?

tradable currency pairs

Forex trading is incredibly popular, mainly because of its high liquidity. In this market, traders focus on a few key currency pairs.

More than half of all Forex trades involve the US dollar, highlighting its significant role in global trade.

The most traded currency pair is EURUSD. It accounts for about 30% of total Forex trades. This isn’t surprising, considering the economic strengths of the United States and the European Union.

These regions’ economic heft makes EURUSD a preferred choice for traders because it offers great liquidity and favourable trading conditions.

Ideally, some traders would only trade EURUSD due to its liquidity, thinking they might not need to diversify.

However, the reality of trading and economic diversity encourages traders to explore other currency pairs as well, such as those involving the British pound, Japanese yen, Swiss franc, Australian dollar, and Canadian dollar.

What Are Currency Pairs?

Currency pairs are essentially a fusion of two nations’ currencies. Each currency within a pair possesses its intrinsic value, and the interplay of these values significantly influences the pair’s price, alongside trader interest.

The inherent nature of currency trading mandates pairs, as every transaction involves the simultaneous purchase or sale of one currency in exchange for another.

For instance, ponder the scenario of utilizing U.S. dollars to procure foreign currency ahead of an overseas excursion.

Within each currency pair, a hierarchical structure emerges, comprising a base currency and a quote currency. The base currency, listed first and situated on the left, holds primary significance, while the quote currency, positioned second and on the right, complements the arrangement.

The price tag affixed to a currency pair delineates the quantum of the quote currency requisite to acquire a solitary unit of the base currency.

Illustratively, in the EUR/USD pairing, EUR assumes the mantle of the base currency, while USD serves as the quote currency.

A currency pair valued at 1.2000 signifies that 1.20 U.S. dollars are requisite to secure one euro, or conversely, one euro equates to 1.20 U.S. dollars in worth.

most traded currency pairs in the world

Different Types of Tradable currency pairs?

In the expansive realm of forex trading, currency pairs are typically classified into three overarching categories: majors, commodity currencies, and cross currencies.

Majors denote the most actively traded currencies in the market. While the exact roster may vary, common consensus typically includes EUR/USD, USD/JPY, GBP/USD, and USD/CHF among this elite group.

Commodity currencies, on the other hand, are intricately linked to the value of commodities such as oil, coal, or iron ore. Within this category, prominent pairs include AUD/USD and USD/CAD, reflecting the symbiotic relationship between these currencies and commodity markets.

Cross currencies diverge from the conventional by excluding the US dollar in their pairings. Notably, two cross-currency pairs have secured a coveted spot in the top ten: EUR/GBP and EUR/JPY, epitomizing the diversity and complexity inherent in forex trading.

Here is a list of the most tradable currency pairs in the world.

What are some most traded currency pairs in the world?

EUR/USD

It is the paramount currency pair in the market, accounting for a noteworthy 24.0% of daily forex transactions in 2019. The allure of EUR/USD stems from its portrayal of the world’s foremost economic powerhouses: the expansive European single market and the robust US economy.

The substantial daily volume of EUR/USD transactions translates into abundant liquidity, fostering tight spreads. This liquidity-driven phenomenon is particularly appealing to traders, facilitating sizable transactions with minimal market impact.

The exchange rate of EUR/USD is subject to multifarious influences, prominently including the interest rate differentials dictated by the European Central Bank (ECB) and the US Federal Reserve (Fed). It is the top among most tradable currency pairs.

USD/JPY

Affectionately dubbed ‘the gopher’, comprises the US dollar and the Japanese yen, constituting the second most traded forex pair globally, commanding a share of 13.2% of daily forex transactions in 2019.

Mirroring the liquidity prowess of EUR/USD, USD/JPY benefits from the yen’s status as the predominant currency in Asia and the US dollar’s ubiquitous presence in global currency markets.

Much like the Fed and ECB, the Bank of Japan (BoJ) wields influence over the Japanese economy by setting interest rates, thereby impacting the yen’s valuation vis-à-vis the US dollar. This is among the most traded currency pairs in the world.

GBP/USD

This currency pair involves the British pound and the US dollar and is commonly known as ‘cable’. This nickname stems from the historic use of transatlantic cables that transmitted bid and ask prices between London and New York.

In 2019, transactions involving the GBP/USD constituted 9.6% of the total daily forex dealings.

The performance of the GBP/USD pair largely depends on the economic vitality of the UK and the US. When the UK’s economy expands more rapidly than the US’s, the pound tends to appreciate against the dollar.

AUD/USD

Commonly known as the ‘Aussie’, the AUD/USD pairing matches the Australian dollar with the US dollar. This duo accounted for 5.4% of all forex transactions daily in 2019.

The Australian dollar’s valuation is closely linked to the country’s export values, notably metals and minerals like iron ore and coal, which are significant contributors to Australia’s GDP.

A decline in the global prices of these commodities typically results in a corresponding drop in the Australian dollar’s value. It is underrated but the best forex pairs to trade.

USD/CAD

The USD/CAD pair, often nicknamed the ‘loonie’ due to the iconic loon bird depicted on Canadian dollar coins, involves the US dollar and the Canadian dollar. In 2019, this pairing represented 4.4% of the total daily forex trading volume.

The Canadian dollar’s strength is intricately connected to oil prices, as oil is Canada’s primary export.

Oil being priced in US dollars means that Canada gains a substantial amount of US dollars through its oil exports. Consequently, an increase in oil prices usually leads to a strengthening of the Canadian dollar relative to the US dollar.

Conclusion

When choosing a currency pair, it’s vital to look at its activity throughout the day. Some pairs might only show significant movement at specific times. Keeping up with financial news is crucial because the popularity and trading volumes of currency pairs can change.

Remember, trading volumes are always shifting, so make sure your decisions are based on the latest data available. Also, follow a price action trading strategy to improve your win-to-lose ratio.

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