What are the Most Popular Currency Pairs to Trade?
All trading in the forex market takes place through buying and selling currency pairs. The most common currency pairs involve the US dollar or Euro. The US dollar is the most actively traded currency in the world, due to the size and strength of the American economy.
In this article, we will have a look at currency pairs in general and some of the most popular currency pairs to trade.
What are currency pairs?
The FX (foreign exchange) market trades currency pairs, which consist of currencies from two countries. Trading within the forex market involves selling, buying, or trading currency pairs. Traders can exchange almost all currencies in the world, but some are more common than others, and the US dollar is included in all primary currency pairs. There are many major currency pairs in the forex market.
Each currency pair has a bid and ask price. The bid price is the highest price a buyer is willing to pay for the currency, while the ask price is the lowest price a seller is willing to sell it for. The difference between the bid and ask price is known as the bid-ask spread.
Some forex traders choose to trade on currency pairs with a lower or tighter spread to minimise trade costs. And other traders choose to trade volatile currency pairs with wider spreads and lower liquidity by capitalising on price fluctuations.
Let’s explore the most popular currency pairs.
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The most popular currency pairs
EUR/USD
The most traded currency pair in the world, accounts for a large proportion of the forex market’s daily trading volume This pair has low spreads, and high liquidity. The EUR/USD pair is popular as it represents the world’s two biggest economies.
USD/JPY
Alsoknown for its high liquidity,is the second most traded currency pair.
USD/GBP
Known as ‘cable’, is considered the third most liquid pair.
USD/CHF
Commonly known as the dollar swissy, is a popular currency pair because the financial system in Switzerland has historically been a safe haven for investors.
USD/CAD
Is commonly called the dollar-loonie. The strength of the Canadian dollar is linked to oil prices as oil is Canada’s main export.
AUD/USD
Is another popular currency pair. The value of the Australian dollar is closely tied to the value of its exports, mainly commodities.
What are the most traded currency pairs?
The eight most traded currencies include the U.S. dollar (USD), the euro (EUR), the Japanese yen (JPY), the British pound (GBP), the Canadian dollar (CAD), the Australian dollar (AUD), the Swiss franc (CHF), and the Chinese Yuan (CNY).
Economic factors that impact the forex market
Macroeconomic factors
The forex market is mainly driven by macroeconomic factors, such as inflation. These factors impact a trader’s decisions and determine the value of a currency at any given point in time. A country’s economic health is a primary factor in the exchange rate of its currency. The health of an economy can change quickly based on current events and new information.
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Global capital markets
The global capital markets are probably one of the clearest indicators of an economy’s health. This is because you can easily observe the release of public information in capital markets, as constant media coverage and real-time updates show how corporations, institutions, and governments respond to new information.
International trade
Another key factor is the balance of trade between countries. The trade balance reflects the relative demand for goods from a country. A country that has products or services that are high in demand globally will experience an appreciation in the value of its currency.
Political news
Politics also play an important role in a country’s economic outlook and the perceived value of its currency. Forex traders closely monitor political news and events to forecast changes in economic policies. These may include changes in government spending and adjustments in regulations for specific sectors or industries.
Elections that have uncertain outcomes are always important events for currency markets. A referendum can also substantially impact exchange rates.
The fiscal and monetary rates of governments are the most important factors in its economic decision making. Central bank decisions that affect interest rates are closely monitored by the forex market for any changes in key rates or the future outlook of policymakers.
Economic statistics
Maintaining economic reports are vital to staying up-to-date in the forex market. GDP (gross domestic product) is probably the most visible economic statistic as it represents a country’s economic performance and strength. It measures the total output of goods and services produced within an economy.
