What Are the Most Commonly Traded Currency Pairs?

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The total number of currency pairs that exist changes as currencies come and go. All currency pairs are categorized according to the volume that is traded on a daily basis for a pair. All forex trades involve the simultaneous purchase of one currency and the sale of another, but the currency pair itself can be thought of as a single unit—an instrument that is bought or sold. When you buy a currency pair from a forex broker, you buy the base currency and sell the quote currency.

AUD/USD: Trading the “Aussie”

If you are interested in opening a live or demo account to trade on the underlying price movements of our currency pairs, read our article with suggestions for the most traded currency pairs. The use of spreads is one of the many ways brokers claim their commissions, and their values vary from broker to broker. But one thing you’ll find common to various brokers is that major currency pairs have very tight spreads.

How currency pairs work

For example, while historically Japanese yen would rank above Mexican peso, the quoting convention for these is now MXNJPY, i.e.
Here’s a look at six of the most traded currency pairs in forex, with rankings based on the 2022 triennial survey by the Bank for International Settlements (BIS).
As a result, traders have a higher profit margin than they would have when trading other currency pairs, like exotic or minor pairs.
The value of the quote currency is given relative to the base currency.

While this creates a risky trading environment, it comes with big rewards as well. The rate or value of these currencies is usually given in pairs. The value of the quote currency is given relative to the base currency. https://investmentsanalysis.info/ In the case of the EUR/USD trading at 1.07, it signifies that one Euro is valued at $1.07. The exchange rate represents how much of the quoted currency (USD) is equivalent to a single unit of the base currency (EUR).

What is currency trading?

The base currency is the one that a trader thinks will go up or down against the second currency in the pair. For example, if you buy pound versus US dollar (GBP/USD), you are anticipating a rise in the pound at the expense of the US dollar. Profit and loss is normally expressed in the amount of the secondary currency in forex trading. However, before diving into the fast-paced world of forex, you need to understand the most popular currency pairs and how to trade them. In this article, we will explore the top forex currency pairs you need to know and provide a few tips for trading them at your best. High volume means more people willing to buy or sell at a given time, too, resulting in a smaller chance of slippage, or smaller slippage when it does occur.

Currency Pair

These countries decided to keep the currency, even if the values were separate from one another. It’s not unusual to see spreads that are two or three times bigger than that of EUR/USD or USD/JPY. Exchange rates fluctuate based on which currency is stronger at the moment.

Popular Nicknames for the Major Currency Pairs and Currencies

These other three currency pairs are also called commodity pairs because their values are strongly attached to commodities, such as natural resources. For instance, the value of the AUDUSD is strongly correlated to the value of gold, since Australia is the second-largest producer of gold in the world. Also watch out for fixed exchange rate policies that tend to reduce volatility or cause large exchange rate gaps when they are changed. Review each country’s central bank policies on interest rates and currency management carefully, and find out the names of key monetary, fiscal and political policymakers. Be very wary of risky geopolitical events like wars, disasters or elections.

Before making a foreign exchange transaction, a trader must first obtain a quotation from a market maker. They would typically do this by communicating the desired currency pair and the amount of one of the currencies to be exchanged to their counterparty. Sometimes the term base currency may also refer to the functional currency of a bank or company, usually their domestic currency. For example, a British bank may use GBP as a base currency for accounting, because all profits and losses are converted to sterling. If a EUR/USD position is closed out with a profit in USD by a British bank, then the rate-to-base will be expressed as a GBP/USD rate. This ambiguity leads many market participants to use the expressions currency 1 (CCY1) and currency 2 (CCY2), where one unit of CCY1 equals the quoted number of units of CCY2.

It can, although much less so than in thinly traded exotic pairs. Depending on your forex broker, you may see the following exotic currency pairs so it’s good to know what they are. The main fundamentals that affect currency pairs are changes in overnight interest rates by central banks, economic data and politics. Volatility in the forex market affects trading decisions by influencing risk tolerance, trade sizing, and the selection of appropriate strategies.

When risk/volatility enters the market, traders bid up the Swiss Franc because the Swiss economy is seen to have lower risk. The popularity of the EUR/USD ensures that it trades at tight spreads. High volumes lead to reduced price differences between the bid Forex pairs and offer. The EUR/USD (Euro/US Dollar) nicknamed ‘Fiber’ is the world’s most traded currency pair commanding 23% of FX transactions in 2016. The Euro and the US Dollar represent the two largest economies in the world, the US Economy and the European Union.

In currency trading, traders often look for currency pairs with the highest pip values, as they are very useful for short-term strategies, such as day trading. The value of each pip depends on your lot size and the specific currency that you are trading. Pips can also be useful for calculating the amount of leverage that a trader can use when foreign currency trading. Forex quotes reflect the price of different currencies at any point in time. Since a trader’s profit or loss is determined by movements in price (the quote), it is essential to develop a sound understanding of how to read currency pairs. Having gained knowledge about trading pairs, factors influencing their value, and various forms of analysis, the next phase involves formulating a trading plan.

Getting started in forex trading is comparable to getting started in any kind of investing. Becoming educated about all aspects of the currency trading process is crucial. You may want to trade in a demo account until you get comfortable enough to put up actual money. When you’re ready to move forward, you’ll need to research forex brokers. Once you’ve found one that meets your needs, you will need to open and fund a trading account. Trading can be done in nearly all currencies, but a select few popular currencies make up the majority of trades.