Exploring the Most Traded Currency Pairs in the Forex Market

by Cloud PR Wire July 27, 2023

–News Direct–

The vast forex market sees trillions of dollars change hands each business day. Trading forex successfully means understanding the dynamics of the major currency pairs that form the cornerstone of global financial markets and the backbone of international trade and investment.

Whether you are an aspiring currency trader or an experienced investor in foreign markets, grasping the intricacies of these major currency pairs is essential for navigating the ever-shifting tides of the forex market.

By gaining a deeper understanding of these major pairs, forex traders can develop a solid foundation for analyzing currency market trends, making more informed trading decisions and capitalizing on potential opportunities in the dynamic world of forex trading.

In this article, Benzinga delves into the fundamentals of the most actively traded currency pairs with the goal of shedding light on their composition, significance and the factors that influence their movements.

Characteristics of Major Currency Pairs

Major currency pairs exhibit several distinct characteristics that distinguish them in the forex market and make them easier to trade. Some key characteristics of the major currency pairs include:

High liquidity: Major currency pairs are known for their high liquidity. This means that a large volume of buyers and sellers are actively trading these pairs, typically resulting in tighter bid-ask spreads that scalpers thrive on. High liquidity also ensures that traders can enter and exit positions quickly without significant order slippage, which is particularly important for short-term forex traders and scalpers.
Tight dealing spreads: Major pairs generally have tighter bid-ask spreads compared to other types of currency pairs. Spreads represent the difference between the exchange rate you can sell a currency pair at and the rate you can buy a currency pair at. Because oftheir popularity and high trading volume, major currency pairs tend to have competitive dealing spreads, making them cost-effective for traders.
Widely covered and analyzed: Major currency pairs receive significant attention from analysts, financial institutions and news outlets worldwide. As a result, there is an abundance of information, analysis and research available for traders to base their decisions on. This extensive coverage enhances transparency and allows traders to access a wealth of fundamental and technical analysis on these pairs.
Influenced by global economic events: Major currency pairs are highly sensitive to global economic events, political developments and central bank decisions. Economic indicators, such as GDP figures, employment reports and interest rate decisions, can have a significant impact on the valuation of major currencies. Traders closely monitor these events and use them as cues to anticipate potential price movements in major currency pairs.
Lower volatility: Major pairs typically exhibit lower volatility compared to crosses or exotic pairs. While they still experience fluctuations in prices, the relatively stable economic conditions and extensive trading activity associated with major currencies contribute to lower volatility levels. This characteristic can be attractive for traders who prefer a more stable and predictable trading environment.
Better for technical analysis: Major currency pairs are widely traded, and their price movements often adhere well to technical analysis principles. Technical indicators and chart patterns can be effectively applied to identify trends, support and resistance levels and potential entry and exit points in major pairs. This quality makes technical analysis a valuable tool for traders focusing on major currency pairs.

The unique characteristics of major currency pairs allow forex traders to tailor their strategies, manage risk better and make more informed trading decisions. The combination of high liquidity, tight dealing spreads, extensive media and analyst coverage and their sensitivity to global economic events makes trading one or more major pairs essential for most active forex traders.

Top Major Currency Pairs in the Forex Market

Forex traders actively operate in the major currency pairs because of their market importance, volatility and potential for capturing profitable trading opportunities. The bar chart below shows the leading forex currency pairs as of April 2022 listed by share of daily average turnover seen in the forex market.

The top major currency pairs actively traded in the forex market include EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD and USD/CAD. They generally represent significant economies, exhibit high liquidity and trading volume and are influenced by a range of economic, monetary and geopolitical factors. More details on each of these majors and why they are so actively traded appear below.

1. EUR/USD

EUR/USD is widely considered the top major currency pair for several reasons. First of all, it consists of the currencies issued by two of the largest economies in the world, the Eurozone and the United States. The Eurozone is made up of multiple countries, including Germany, France, Italy and Spain, making it a significant economic force globally. Also, the U.S. dollar (USD) is the world's primary reserve currency, so the state of the U.S. economy can have a substantial impact on the worlds financial markets. The EUR/USD pair exhibits high liquidity and very tight dealing spreads. The pair is also heavily influenced by U.S. and EU economic indicators, monetary policy decisions from the European Central Bank (ECB) and the Federal Reserve (Fed) and relevant geopolitical events.

2. USD/JPY

USD/JPY is considered a top major currency pair because of its connection between the major economies of the United States and Japan. The United States is a global economic powerhouse, while Japan has a significant global presence in various industries, including automotive, technology and manufacturing. The USD/JPY pair is influenced by U.S. and Japanese economic data, the interest rate differential between the two countries and monetary policy decisions from the Bank of Japan (BoJ) and the Federal Reserve (Fed). Traders tend to be attracted to the USD/JPY pair because of its high liquidity, moderate volatility and the potential for capturing exchange rate movements in response to changes in market sentiment and risk appetite.

3. GBP/USD

GBP/USD, also known as Cable, is a top major currency pair that represents the exchange rate between the British pound (GBP) and the U.S. dollar (USD). The pair is highly influential and widely traded because of the economic and historical significance of both countries. The United Kingdom is a major financial hub with global influence, while the United States is a world economic leader. GBP/USD is influenced by U.S. and U.K. economic indicators, monetary policy decisions from the Bank of England (BoE) and the Federal Reserve Bank and political developments, particularly those related to Brexit. The pair exhibits significant liquidity and decent volatility, and it attracts traders seeking opportunities that arise from market fluctuations.

4. USD/CHF

USD/CHF is the exchange rate between the U.S. dollar (USD) and the Swiss franc (CHF). This pair is considered a major currency pair because of Switzerland's strong financial industry and its traditional reputation as a safe-haven currency since the Swiss franc is often sought out by investors during times of uncertainty or market turbulence. USD/CHF is influenced by economic indicators in the U.S. and Switzerland, monetary policy decisions from the Swiss National Bank (SNB) and the Federal Reserve, as well as global economic and geopolitical events. The pair exhibits significant liquidity and volatility that traders may appreciate, and it is also attractive to investors looking for stability and diversification.

5. AUD/USD

AUD/USD is one of the major currency pair that represents the Australian dollar (AUD) quoted in terms of the U.S. dollar (USD). Australia is a resource-rich country with significant ties to Asia-Pacific economies, while the United States is a major trading partner. The pair is influenced by commodity prices (especially gold, oil and agricultural products), economic indicators in both countries, interest rate differentials that can make carry trading attractive and monetary policy decisions from the Reserve Bank of Australia (RBA) and the Federal Reserve. AUD/USD offers substantial liquidity, volatility and opportunities for traders looking to profit from trends in commodities and economic developments in the two countries.

6. USD/CAD

USD/CAD represents the U.S. dollar (USD) quoted in terms of the Canadian dollar (CAD). It is considered a major currency pair because of the economic ties between the United States and Canada, as well as those countries' status as major trading partners. Canada is rich in natural resources, particularly gold and oil, so fluctuations in commodity prices can influence the pairs exchange rate. USD/CAD is also affected by economic indicators in each country, interest rate differentials, monetary policy decisions from the Bank of Canada (BoC) and the Federal Reserve and the state of economic ties between the two countries. The pair offers traders liquidity, volatility and the opportunity to operate in a commodity-related currency pair.

Note that the USD/CNY exchange rate is not actively traded by forex traders, even though it made up 6.6% of daily forex market turnover in April 2022. The Chinese renminbi is tightly managed by the Chinese government and has only been allowed to float in a narrow margin around a fixed base rate determined with reference to a basket of world currencies since 2006.

Should You Trade the Major Currency Pairs?

Trading the major currency pairs can make great sense for many forex traders because of their numerous advantages. Major pairs offer high liquidity, which means that you can easily enter and exit positions at desired prices without experiencing significant order slippage.

This liquidity also ensures that your trades can be executed efficiently and without major obstacles. Another plus of the major pairs high liquidity levels is that they usually display tight dealing spreads, making them more cost-effective to trade. This aspect allows you to minimize your transaction costs and potentially increase your overall profitability.

Major pairs tend to receive extensive coverage and analysis from financial institutions and news outlets, which can provide valuable insights and help you make more informed trading decisions. Major currency pairs also tend to be more stable and less volatile compared to some minor, cross or exotic pairs, which can be attractive if you are seeking a more predictable trading environment.

Trading the major pairs will thus make sense for most forex traders. Still, since each trader's preferences and trading strategy may vary, you will want to carefully assess your own risk tolerance and trading goals so that you can adapt your approach to trading the major currency pairs accordingly.

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