What Are the Most Traded Currency Pairs in Forex?
Are you new to the forex market or an ambitious trader? It is essential to understand the most popular currency pairs. In forex, there are many different currencies traded. Yet, a small number of currency pairs account for a sizable portion of the trading volume.
Making the choice of which currency pairs to trade might be challenging. You are in the appropriate location if so. The most popular currency pairs are included in the article. Also, you will learn the causes of their appeal.
Most Traded Currency Pairs in the Forex Market
Here is the list of currency pairs that are most popular. These currency pairs contribute a significant part of forex trading volume.
1) EUR/USD
The currency pair EUR/USD represents the two large economies- the USA and the European Union. It accounts for about 20% of the trading volume, resulting in tight spreads. It is among the most liquid forex pairs.
2) USD/JPY
USD/JPY is the second most traded currency pair, accounting for about 13% of daily trading volume in 2019. It is also known as the ‘gopher.’ It also assures better liquidity. The interest rates set by the US Federal Reserve and Bank of Japan influence the exchange rates.
3) GBP/USD
The currency pair GBP/USD is also known as ‘Cable’ in forex. It is due to the deep-sea steel cable between London and the New York Stock Exchange. It accounted for about 13.65% of daily forex trading volume in 2021.
4) AUD/USD
The currency pair AUD/USD is also known as ‘Aussie.’ It takes about 7% of the daily forex trading volume. The Australian economy relies on commodities exports like iron ore and coal. Any fluctuation in their price in the global market may influence the exchange rate.
5) USD/CAD
The currency pair USD/CAD is also known as ‘Loonie’ for the bird on the Canadian coins. Canada earns a decent amount of dollars through their oil exports. The rise in global oil prices may appreciate the Canadian Dollar against the US Dollar. The currency pair takes up about 5% of the forex trading volume.
6) USD/CNY
The currency pair USD/CNY represents the two magnificent economies of the USA and China. The currency pair takes up about 4% of forex trade.
7) USD/CHF
The currency pair USD/CHF is also known as ‘Swissie.’ It is popular among traders due to the stable and growing Swiss financial system.
8) USD/HKD
The currency pair USD/HKD has seen a significant rise in trading volume due to turbulence in Hong Kong. The Hong Kong Dollar changes according to the US Dollar. It follows a linked exchange rate system. The Hong Kong Dollar can fluctuate from 7.75 to 7.85 for 1 US Dollar.
9) EUR/GBP
The experts consider the currency pair EUR/GBP difficult to predict. Yet it takes up about 2% of the trading volume. Traders need to be cautious about interest rates and other factors after Brexit in 2020.
10) USD/KRW
The currency pair USD/KRW has grown in volume in recent years. It is due to the economic development of South Korea. So, traders seek exposure to an Asian economy other than China, Japan, and Hong Kong.
The Story Behind The Most Traded Currency Pairs: Brief History of Forex
If you are new to forex trading, you might be curious as to how this market got its start. Are you aware of the causes influencing its current scope and size?
Foreign trade was first practised in antiquity. Yet, money was linked to gold for a very long period. Subsequently, a few extraordinary occurrences resulted in various adjustments.
The Bretton Woods Agreement (1944)
Rebuilding the broken post-war global economy was crucial. Similar to that, promoting global economic cooperation required agreement among important international entities.
The gold standard was established in 1944 by the Bretton Woods Accord. It also established a framework for regulated foreign exchange rates. The US Dollar was acknowledged by the participants as the foundation of global trade.
The representatives of 44 nations decided to create the International Monetary Fund (IMF).
The Bretton Woods Agreement established a collective system of international currency exchange that lasted for almost three decades. At this time, the US Dollar’s value was tied to gold while the currencies of several nations were fixed to the US Dollar.
How Free-Floating System Changed the Dynamics
The Free-Floating System began in 1973. The exchange rates in this system are determined by the supply and demand for different currencies. Hence, a floating rate corrects itself. The market balances out supply and demand discrepancies.
After-effects of the Free-Floating System
Market volatility results from the Free-Floating System’s fluctuating currency exchange rates, which are influenced by supply and demand. Exchange rate stability is guaranteed by robust economies and prudent fiscal practises. The market’s perception of a specific government and its policies may also have an impact on currency rates.
The Active Role of Central Banks Grew to Manage Currencies
Nonetheless, the central banks have the ability to buy and sell. The currency conversion rates are balanced. They purchase a currency in order to boost demand and enhance the exchange rate. They sell in order to increase supply and bring down the exchange rate.
The exchange rate does not require central banks to maintain foreign exchange reserves. Instead, they can import capital goods using their forex reserves. As a result, they can aid in the respective nation’s economic development.
Events in the 1990s that Brought a Positive Impact
Since the 1990s, the global economy has experienced tremendous expansion. Many beneficial improvements resulted from the banking sector’s acceptance of technology advancements.
It became simple to participate in the market. The importance of tools like online trading and the rise in use of mobile devices cannot be overstated. These days, everyone can participate in forex trading.
Large trading volumes are dominated by institutions, hedge funds, and central banks. Individual retail dealers are becoming more involved. A sizable portion of all global financial transactions occur on the FX market.
Why Are Only a Few Forex Currency Pairs Popular?
Here are some factors that make major pairs in forex the most popular choice for traders:
Stability and Liquidity
Significant currency pairs come from powerful and stable economies. As a result, their exchange rates would seldom ever experience major changes. Trading these currency pairs is very simple for traders. There may not have been a significant financial loss.
How a Country is Attractive as an Investment Destination
To maintain a better currency exchange rate, a government’s actions to entice investments in the respective countries are important. A country’s attractiveness to foreign investors is influenced by factors including ease of doing business, a favourable tax system for both new and current investors, improved industrialisation infrastructure, and first-rate import and export facilities.
Country’s Economic Growth and Net Trade Count
The rate at which currencies are exchanged is substantially influenced by a nation’s overall economic growth. Significant pairs indicate countries with expanding trade, stable business-friendly infrastructure and regulations, and significant currency trading activity.
Why is the USD the Reserve Currency?
The largest economy in the world, the United States of America, uses the US Dollar as its official currency. It is a major player in world trade. The US dollar is the most widely used currency due to its economic stability.
For a variety of businesses, the United States of America is one of the top investment destinations. Leading multinational corporations like Google, Meta, Amazon, and Tesla have their roots there.
This nation has become a popular investment destination for investors worldwide as its businesses prosper. Almost half of all global financing is provided by the American financial system.
As the most redeemable currency, it supports global business. The most popular trading pairs are the US dollar.
The majority of central and commercial banks hold US dollars, it is crucial to mention. For investments and international trade, they maintain US Dollar reserves.
Because of this, the US dollar serves as the global currency’s emblem. With around 63% of all currency reserves, it serves as the main “reserve currency” for the entire world.
Interesting Facts About Forex Currency Pairs
- The total value of the global forex industry was about US$ 1.93 quadrillion in 2022. The daily turnover is about US$ 7.5 trillion.
- Kuwaiti Dinar (KWD) has the highest currency rate (Currently US$ 3.27). Though it is the world currency highest, it is not among the most traded currency pairs.
- The Iranian Rial is the world’s lowest currency (Currently US$ 0.00024)
- The US Dollar is a part of more than half of forex trades.
- Experts consider EUR/USD as the best currency pair to trade. It accounts for about 20% of forex trades.
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The article takes you through the most traded currency pairs. It also helps you understand why a few currency pairs are popular for trading. Choose TraderMade as your market data partner. You get trustworthy and accurate forex data to make informed trading decisions. You can empower your apps and websites with data retrieval features.
Originally published on our website: What Are The Most Traded Currency Pairs in Forex?
