Forex is the largest and most liquid market, with trillions of dollars traded between millions of parties around the globe each day.
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One of the first steps in understanding the market aka foreign exchange or currency trading is to gain familiarity with some of the more commonly traded currency pairs.
What Are Currency Pairs?
Currency pairs measure the value of one currency against another. They are split into a base currency and a secondary quote currency.
An example is perhaps the most popularly traded currency pair in the world, the EUR/USD, where its price represents how much of the quote currency, the US dollar, is required to buy one unit of the base currency, the Euro.
Each currency pair has a bid and ask price. The bid price is defined as the maximum price a buyer is willing to pay for the currency, the ask price is defined as the minimum price.
A seller would be willing to accept the currency for, and the bid-ask spread represents the difference in pricing between the two currencies.
In some cases, Forex traders prefer to trade on currency pairs with a lower or tighter spread as it reduces the overall costs involved in the trade.
However, some traders prefer to trade on volatile currency pairs with wider spreads and lower liquidity in an attempt to profit from the fluctuating gaps in price.
Here are the 5 most traded currency pairs across the trading sphere:
USD/JPY
“The Gopher” is a combination of the US dollar and the Japanese yen. It is one of the most popular forex pairs in the world due to the prominence of the JPY throughout Asia and the USD worldwide.
It also has one of the tightest spreads in the forex market, reducing the overall costs of the trade.
Minimum spread: 0.7 points
Margin rate: 3.3%
EUR/USD
“The Fiber” is a combination of the Euro and the US dollar. This is generally considered the most traded currency pair as it stems from two of the world’s largest and most reputable economies.
This combination can be seen as one of the best currency pairs for Forex scalping, as the markets are mostly stable throughout the year.
Minimum spread: 0.7 points
Margin rate: 3.3%
GBP/USD
“The Cable” is a combination of the British pound sterling and the US dollar. This is seen as a particularly volatile currency pair, due to its frequent fluctuations in price, exchange rate, and pip movements.
This can result in large profits if the trader is successful, however, it can result in equally great losses when market volatility is at a high.
The GBP/USD is particularly favored by day traders, who aim to take advantage of price fluctuations by dipping in and out of the market at a quick and precise pace.
Minimum spread: 0.9 points
Margin rate: 3.3%
EUR/GBP
“The Chunnel” is a combination of the Euro and the British pound sterling, a play on words for the Channel Tunnel that connects both continents.
This currency pair is typically seen as very strong, given the proximity of regions and their solid history of trade.
Given the situation of Brexit on the economy, the Forex pair has become more volatile in recent years, which can be very attractive for skilled traders.
Minimum spread: 1.1 points
Margin rate: 3.3%
USD/CHF
“The Swissie” is a combination of the US dollar and the Swiss franc. For many years, the financial stability of Switzerland has been used as a ‘safe haven’ for investors of the Forex market.
Therefore, this is a popular Forex pair for traders when the economic or political situation of a region is uncertain. As the value of the CHF strengthens against the USD due to increasing investment, the price of this currency pair starts to drop.
Minimum spread: 2.5 points
Margin rate: 3.3%
Whether you are trading minor, exotic, or the most traded currencies, there are specific Forex trading strategies to suit every personality. Stick to that and you'll get positive outcomes.
