What Are The Most Traded Currency Pairs in Forex?
14 February 2023
Are you an aspiring trader or a beginner in the forex arena? Knowing about the most traded currency pairs is critical. There are hundreds of currencies traded on forex. Yet, only a handful of currency pairs take a large part of the trading volume.
You may find it difficult to decide which forex pairs to trade. If so, you are in the right place. The article discusses the most traded currency pairs. You will also find out the reasons behind their popularity.
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.
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.
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.
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.
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.
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.
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.
The currency pair USD/CHF is also known as ‘Swissie.’ It is popular among traders due to the stable and growing Swiss financial system.
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.
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.
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 a beginner in forex trading, you may wonder how this market might have started. Are you aware of the reasons behind its present-day coverage and size?
The foreign exchange began in an ancient era. Yet, for a long time, money was pegged to gold. Later, some remarkable events led to different changes.
The Bretton Woods Agreement (1944)
It was essential to reconstruct the shattered post-war global economy. Similarly, a consensus among prominent international players was necessary to promote global economic cooperation.
The Bretton Woods Agreement in 1944 established the gold standard. Also, it determined a framework for fixed international currency exchange rates. The delegates accepted the US Dollar as the backbone of international exchange.
The delegates from 44 countries agreed to establish the International Monetary Fund (IMF).
The collective regime for international currency exchange established by the Bretton Woods Agreement continued for almost three decades. Currency prices of many countries were pegged to the US Dollar, and the US Dollar price was pegged to gold during this phase.
How Free-Floating System Changed the Dynamics
In 1973, the Free-Floating System started. In this system, the demand and supply of currencies determine the exchange rates. So, a floating rate is self-correcting. The market corrects the differences in supply and demand.
After-effects of the Free-Floating System
The Free-Floating System leads to market volatility, as currency exchange rates fluctuate based on demand and supply. Strong economies with sound fiscal policies ensure stability in exchange rates. At the same time, the market sentiment towards a particular government and its policies may influence the exchange rates.
The Active Role of Central Banks Grew to Manage Currencies
But, the central banks can intervene as buyers and sellers. They balance the currency conversion rates. They buy a currency to increase demand and raise its exchange rate. They sell to push more supply to lower the exchange rate.
Central banks need not keep forex reserves to defend the exchange rate. Instead, they can use forex reserves to import capital goods. Thus, they can promote the economic growth of the respective country.
Events in the 1990s that Brought a Positive Impact
Since the 1990s, we have seen massive growth in the economy on a global scale. The adoption of technological advancements in the financial sector brought many positive changes.
Market participation became convenient. Facilitations like internet trading and the growing popularity of handheld devices were critical. Today, a person can take part in forex trading from anywhere.
The central banks, institutions, and hedge funds take up a large trading volume. The participation of individual retail traders is growing. The forex market moves a significant part of all money in the world.
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
Major currency pairs are from strong and stable economies. So, there would be hardly any significant fluctuations in their exchange rates. Thus, traders can trade these currency pairs with ease. There may not be any massive financial loss.
How a Country is Attractive as an Investment Destination
A government’s policies to attract investments in the respective countries matter to sustain a better currency exchange rate. The aspects like ease of doing business, the attractive tax regime for new and existing investors, better infrastructure for industrialization, and excellent facilities for import and export contribute to making a nation attractive for foreign investors.
Country’s Economic Growth and Net Trade Count
The overall economic growth of a country significantly affects the currency exchange rate. Major pairs represent economies possessing growing import and export, well-established business-friendly infrastructure and policies, and a considerable forex trading volume.
Why is the USD the Reserve Currency?
The US Dollar is the currency of the United States of America, the largest economy in the world. It is a powerhouse in international trade. The economic stability makes the US Dollar the most preferred currency.
The United States of America is one of the most preferred investment destinations for wide-ranging businesses. Top global companies, like Google, Meta, Amazon, and Tesla, originate from there.
As businesses flourish in this country, it has been an attractive investment destination for investors globally. The US Financial System is about 50% of the world’s total finance.
It facilitates world commerce being the most redeemable currency. The US Dollar is a part of the most favoured trading pairs.
It is important to note that most central and commercial banks hold US Dollars. They keep US Dollar reserves for international transactions and investments.
That’s why the US Dollar is the symbol of world currency. It is the world’s primary ‘reserve currency,’ accounting for about 63% of currency reserves.
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.
Also, Read Forex Data API: Things You Didn’t Know
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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.