Major currency pairs: most traded currencies
Find out everything you need to know about trading currencies, including how it works, the major currency pairs and the most traded currencies globally.
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Trading currency pairs
Currency trading, also known as forex, foreign exchange or FX trading, is the conversion of one currency into another. Roughly $6.5 trillion worth of currency transactions are carried out every single day – whether by individuals, banks or companies. This makes forex one of the most actively traded markets in the world.
Foreign exchange is often done for practical purposes. For example, you might exchange your local currency for US dollars before going on holiday to the United States. However, the vast majority of currency conversion is done by forex traders looking to turn a profit.
The amount of currency converted every day means that the market is highly liquid, but also makes some currencies extremely volatile. While this can offer exciting and potentially lucrative trading opportunities, it comes with additional risk, too.
What are the base and quote currencies?
The ‘base’ currency is always listed first in a forex pair, with the ‘quote’ currency listed second. The base currency is always equal to one, while the quote currency represents the current price of the pair.
The quote represents how much it’ll cost to buy one of the base currency.
So, if the price of GBP/USD is quoted as 1.13490, it would cost you 1.13490 US dollars to buy one British pound.
When you are trading forex, you are always buying one currency and selling another at the same time. Learn more about base and quote currencies.
Major Currency Pairs Explained
In theory, there are thousands of currency pairs in existence, as there are thousands of official currencies used all over the world.
However, only a handful of currencies are actively traded on the forex market. This is because only the most economically and politically stable and liquid currencies are demanded in sufficient quantities. The world's eight major currencies are the:
- US Dollar (USD)
- Euro (EUR)
- British Pound (GBP)
- Japanese Yen (JPY)
- Swiss Franc (CHF)
- Canadian Dollar (CAD)
- Australian Dollar (AUD)
- New Zealand Dollar (NZD)
What are the major currency pairs?
Currency pairs are generally split into three main categories: majors, minors, and exotics. All the pairs within these categories include at least one of the world's main currencies.
Major currency pairs
There are seven major currency pairs. They pair the US dollar with the world’s other major currencies.
|Euro against US dollar
|US dollar against Japanese yen.
|‘Ninja’ or ‘Gopher’
|Great British pound against US dollar.
|US dollar against Swiss franc.
|Australian dollar against US dollar.
|US dollar against Canadian dollar.
|New Zealand dollar against US dollar.
The majors are the most widely traded currency pairs in the forex market, accounting for more than 70% of all FX trades. Because these pairs have the largest volume of buyers and sellers (I.e. they’re highly liquid), they also typically have the tightest spreads.
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Exotic currency pair
An exotic currency pair is the combination of one of the 8 major currencies and a currency from a developing or emerging economy. For example:
|Euro against US dollar
|US dollar against Singapore dollar
|Great British pound against Danish Krone
|Euro against Polish Zloty
Be aware that exotic currency pairs can be prone to increased volatility, more unpredictable price swings, and are less liquid than major or minor pairs. Political and economic risks in emerging markets are generally elevated, which can cause currencies to lose value rapidly.
If you're thinking of trading exotics, please do your due diligence and make sure you have a risk-management strategy in place.
Most traded currency pairs
As mentioned above, the majors are the most traded currency pairs. They account for more than 70% of all FX transactions daily.
EUR/USD is the single most traded currency pair, accounting for about 28% of all transactions.
EUR/USD is so popular because it represents two of the world’s two biggest economies: the European single market and the US.
USD/JPY is the second most traded forex pair on the market with a 13% share of all daily forex transactions. Similar to EUR/USD, USD/JPY is known for its liquidity.
This is due to fact that the yen is the most heavily traded currency in Asia, and the US dollar is the world’s most actively traded currency.
What are commodity currencies?
A commodity currency is a currency that moves in correlation with the global price of primary commodities.
Commodity currencies are prevalent in countries like Canada, Australia, New Zealand, Brazil, South Africa and Russia, because their economic performance is tied to commodity exports.
The most traded commodity currencies are the Canadian dollar, the Australian dollar, and the New Zealand dollar.
What affects currency movements?
The value of a currency pair is determined by the relative strength of one currency against the other. Fundamentally, this is based on supply and demand – just like any other financial market. Investors generally look to invest their money in a country with a strong economic outlook and growth potential.
Various factors, including interest rates, inflation, political stability, and overall economic performance, can influence supply and demand. This creates daily volatility that forex traders try to take advantage of.
Central banks control the supply of a nation’s currency. This means they have the power to put in place policies that will have a significant effect on that currency’s price. For example, if they inject more money into an economy (known as quantitative easing), it can cause a currency’s price to fall as additional supply floods the market.
If a positive piece of news hits the markets about a certain nation or region’s economy, it will encourage investment and increase demand for that nation’s currency. On the flip side, if negative news breaks, demand is likely to drop. In general, currency performance tends to reflect the economic health of the nation they represent.
Market sentiment (the overall mood and feeling about a currency among traders) also plays a major role in determining currency prices. Market sentiment is often closely tied to news reports. If traders believe that a currency is looking strong or weak, they will trade it accordingly, which can increase or decrease demand.
What is the best time to trade currencies?
The forex market is unique because it’s open 24 hours a day, five days a week.
There is a global network of banks and market makers that are constantly exchanging currency. And because the market runs during the normal business hours of four different parts of the world and their respective time zones, this enables the forex market to be open around the clock.
Currency trading hours
There are four major sessions in the forex market: New York, Tokyo, Sydney, and London. The time differences between these locations mean that at least one session is always active.
New York (open 1pm to 10pm UTC) is the second-largest currency market in the world. With the US dollar as the most traded currency globally, sessions here are closely monitored by foreign investors.
Tokyo (open 12am to 9am UTC) hosts the largest bulk of Asian trading. Currency pairs that include the yen or US dollar tend to see a lot of trading action here.
Sydney (open 10am to 7pm UTC) is where the trading day officially begins. While it’s the smallest of the main markets, it sees a lot of initial action when the markets reopen on Sunday afternoon.
London (open 8am to 5pm UTC). The UK is the world’s biggest currency market, accounting for roughly 43% of global trading.
FREQUENTLY ASKED QUESTIONS
The value of a currency pair is determined by the relative strength of one currency against the other. Various economic factors, including interest rates, inflation, political stability, and overall economic performance, can influence the value.