Most popular currencies in Forex Trading

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Forex is the largest and most liquid market, with trillions of dollars traded between millions of parties around the globe each day. One of the first steps in understanding the market—which is also known as foreign exchange or currency trading—is to gain familiarity with some of the more commonly traded currencies. Here is a look at six major currencies, as well as the underlying traits and characteristics of each one.

1. The U.S. Dollar

The U.S. dollar, which is sometimes called the greenback, is first and foremost in the world of forex trading, as it is easily the most traded currency on the planet. The U.S. dollar can be found in a currency pair with all of the other major currencies and often acts as the intermediary in triangular currency transactions. This is because the greenback acts as the unofficial global reserve currency, held by nearly every central bank and institutional investment entity in the world.

In addition, due to the U.S. dollar’s global acceptance, it is used by some countries as an official currency, in lieu of a local currency, a practice known as dollarization. The U.S. dollar also may be widely accepted in other nations, acting as an informal alternative form of payment, while those nations maintain their official local currency.

Key Takeaways

  • Forex trading is the world’s largest and most liquid market.
  • The U.S. dollar, the euro, Japanese yen, Swiss franc, Canadian dollar, and British pound are actively traded currencies.
  • The U.S. dollar is one side of many popular currency pairs and is also a reserve currency, making it first and foremost in the world of currency trading.
  • Economic trends in the U.K. are often captured by movements in the British pound, while the euro is the currency of the eurozone.
  • The Japanese yen is the most active of the Asian currencies, due partly to the popularity of the carry trade.

The U.S. dollar is also an important factor in the foreign exchange rate market for other currencies, where it may act as a benchmark or target rate for countries that choose to fix or peg their currencies to the dollar’s value. China, for instance, has long had its currency, the yuan or renminbi, pegged to the dollar, much to the disagreement of many economists and central bankers. Quite often, countries will fix their currencies to the U.S. dollar to stabilize their exchange rates rather than allowing the free (forex) markets to drive the currency’s relative value.

One other feature of the U.S. dollar is that it is used as the standard currency for most commodities, such as crude oil and precious metals. Thus, these commodities are subject not only to fluctuations in value due to the basic economic principals of supply and demand but also to the relative value of the U.S. dollar, with prices highly sensitive to inflation and U.S. interest rates, which can affect the dollar’s value.

2. The Euro

The euro has become the second most traded currency behind the U.S. dollar. The official currency of the majority of the nations within the eurozone, the euro was introduced to the world markets on Jan. 1, 1999, with banknotes and coinage entering circulation three years later.

Along with being the official currency for most eurozone countries, many nations within Europe and Africa peg their currencies to the euro, for much the same reason that currencies are pegged to the U.S. dollar—to stabilize the exchange rate. As a result, the euro is also the world’s second-largest reserve currency.

With the euro being a widely used and trusted currency, it is prevalent in the forex market and adds liquidity to any currency pair it trades with. The euro is commonly traded by speculators as a play on the general health of the eurozone and its member nations. Political events within the eurozone can also lead to large trading volumes in the euro, especially in relation to nations that saw their local interest rates fall dramatically at the time of the euro’s inception, notably Italy, Greece, Spain, and Portugal. The euro may be the most “politicized” currency actively traded in the forex market.

3. The Japanese Yen

The Japanese yen is easily the most traded of Asian currencies and viewed by many as a proxy for the underlying strength of Japan’s manufacturing and export-driven economy. As Japan’s economy goes, so goes the yen (in some respects). Forex traders also watch the yen to gauge the overall health of the Pan-Pacific region as well, taking economies such as South Korea, Singapore, and Thailand into consideration, as those currencies are traded far less in the global forex markets.

The yen is also well known in forex circles for its role in the carry trade (seeking to profit from the difference in interest rates between two currencies). The strategy involves borrowing the yen at next to no cost (due to low-interest rates) and using the borrowed money to invest in other higher-yielding currencies around the world, pocketing the rate differentials in the process.

With the carry trade being such a large part of the yen’s presence on the international stage, the constant borrowing of the Japanese currency has made appreciation a difficult task. Though the yen still trades with the same fundamentals as any other currency, its relationship to international interest rates, especially with the more heavily traded currencies such as the U.S. dollar and the euro, is a large determinant of the yen’s value.

4. The Great British Pound

The Great British pound, also known as the pound sterling, is the fourth most traded currency in the forex market. Although the U.K. was an official member of the European Union, the country never adopted the euro as its official currency for a variety of reasons, namely historic pride in the pound and maintaining control of domestic interest rates. As a result, the pound is sometimes viewed as a pure play on the United Kingdom.

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Forex traders will often estimate the value of the British pound based on the overall strength of the British economy and political stability of its government. Due to its high value relative to its peers, the pound is also an important currency benchmark for many nations and represents a very liquid component in the forex market. The British pound also acts as a large reserve currency due to its historically high relative value compared to other global currencies.

5. The Canadian Dollar

Also known as the loonie, the Canadian dollar is probably the world’s foremost commodity currency, meaning that it often moves in step with the commodities markets—notably crude oil, precious metals, and minerals. With Canada being such a large exporter of such commodities, the loonie often reacts to movements in underlying commodities prices, especially that of crude oil. Traders often trade the Canadian dollar to speculate on the movements of commodities or to hedge positions in the commodities market.

Being located in close proximity to the world’s largest consumer base—the United States—the Canadian economy and the Canadian dollar are highly correlated to the U.S. economy and movements in the U.S. dollar as well.

6. The Swiss Franc

Last is the Swiss franc, which, much like Switzerland, is viewed by many as a “neutral” currency. More accurately, the Swiss franc is considered a safe haven within the forex market, primarily due to the fact that the franc tends to move differently than more volatile commodity currencies, such as the Canadian and Australian dollars. The Swiss National Bank has actually been known to be quite active in the forex market to ensure that the franc trades within a relatively tight range, to reduce volatility, and to keep interest rates in check.

The Forex market is one of the biggest and most liquid in the world, with a total daily average trading volume of USD 5.1 trillion in April 2020, according to the Bank For International Settlements ( BIS ).

Most of this trading activity is concentrated within 5 countries:

  1. United Kingdom
  2. United States
  3. Singapore
  4. Hong Kong SAR
  5. Japan

These sale desks intermediated 77% of all currency trading in April 2020, according to BIS statistics.

Since 1986, the BIS monitors all Forex market activity every three years to spot any changes in global financial markets, in order to know how currencies in the world are traded.

Some of these factors include:

  • International trades, trading volumes
  • Exchange rates
  • Widely traded currency pairs, etc.

When traders invest in the Foreign Exchange market, it’s mainly because they want to take advantage of frequently traded Forex pairs with a large average daily price, allowing them to make big profits.

The chart below is from the Triennial Central Bank Survey of the BIS, which represents the daily averages in April 2020 of the Forex Exchange market turnover by currency pairs between 2020 and 2020, net-net basis, in percent.

Market turnover by currency pairs between 2020 and 2020

The most traded currency in the world

There are several reasons why the American Dollar is the most traded currency in the world.

Going back in history, the USD became the world’s reserve currency with the Bretton Woods Agreement in 1944, when all foreign currencies were pegged to it.

At that time, the USD was the only currency convertible in Gold, which makes it the standard unit of currency in the international commodity market today, especially with Gold and Oil.

It’s a trustworthy, stable, and reliable currency, which makes it the most used in international transactions. The American Dollar is widely accepted throughout the world as a medium of exchange, and a means of payment, in many countries.

As an example of the American Dollar’s supremacy, a few nations besides the U.S. use the U.S. Dollar as their official currency, such as El Salvador, Panama and Ecuador. This is a process called dollarization.

The second largest reserve currency

The Euro is the 2 nd most traded currency, and the 2 nd largest reserve currency.

While it was introduced on January 1 st , 1999 to 11 countries, it is now the official currency of 19 countries within the European Union.

Not all EU member states have the Euro as their main currency, but over 337 million EU citizens now use Euro coins and notes.

In addition, more than 20 countries outside the Eurozone have pegged their currencies to the Euro in order to stabilise their exchange rates, such as Bulgaria, Bosnia, and about 15 African countries.

The Yen is viewed as a safe haven

The Yen, the official currency of Japan, is the 3 rd most traded currency in the foreign exchange market.

It’s also the most liquid currency in Asia, and the 4 th most important reserve currency in the world (after the U.S. Dollar, the Euro, and the Pound Sterling), especially for Asian countries.

Even though the country has very high debt levels and doesn’t have a high growth economy, Japan seems to provide more stability than the majority of the other world economies.

For this reason, traders are confident in its economy, and the Yen is seen as a safe haven in times of high volatility and uncertainty.

The Yen carry trade is among the most well known and popular currency carry trade strategies among investors – this is where traders will borrow Yen because of the low interest rate in order to buy currencies with higher interest rates, making profits on the difference.

Remember the basics of currency trading.

When you invest in the Forex market, you buy or sell currency pairs – not currencies.

To know at which price you can do so, just have a look at FX quotes, which represent the buying (ask) and selling (bid) prices depending on your scenario:

  • If you think that the AUD/USD is going up, you would go long (buy the currency pair),
  • If you think that the GBP/JPY is going down, you would go short (short-sell the currency pair).

In the above examples, the Australian Dollar (AUD) and the British Pound (GBP) are called the base currency, while the American Dollar (USD) and the Japanese Yen (JPY) represent the quote currency.

There are different sorts of currency pairs you can trade with different kinds of trading conditions associated.

These currency pairs are the most traded. They all have the American Dollar either as a base currency, or a quote currency.

You will usually have the best trading conditions with these pairs: tighter spreads, lower margin requirements, higher leverage, etc.

        • EUR/USD Euro/U.S. Dollar
        • USD/JPY U.S. Dollar/Japanese Yen
        • GBP/USD Sterling/U.S. Dollar
        • USD/CHF U.S. Dollar/Swiss Franc
        • USD/CAD
        • U.S. Dollar/Canadian Dollar
        • AUD/USD

Minors are also called cross currency pairs. These represent less traded pairs.

They usually do not have the U.S. Dollar on either side, but they do contain one of the major currencies.

    • EUR/GBP Euro/Sterling
    • GBP/CAD British Pound/Canadian Dollar
    • NZD/JPY New Zealand Dollar/Japanese Yen
    • EUR/AUD Euro/Australian Dollar
    • GBP/JPY British Pound/Japanese Yen

    Exotic currency pairs usually have one major currency against a currency from a developing, or smaller, economy. Because these currency pairs aren’t found as often as the others they aren’t exactly most liquid currency pairs.

    They can be among the most volatile currency pairs and trading these can be more expensive, with a wider spread than more conventional pairs.

    • JPY/NOK Japanese Yen/Norwegian Krone
    • GBP/ZAR Sterling/South African Rand
    • AUD/MXN Australian Dollar/Mexican Peso
    • EUR/TRY Euro/Turkish Lira
    • USD/THB U.S. Dollar /Thailand Baht

    The most popular currency pairs between April 2020 and April 2020 were the USD/EUR, representing 23% of all transactions, followed by the USD/JPY, and the USD GPB, which represented 17.7%, and 9.2% of the transaction respectively.

    As you can see from the first image in this article, the USD is the world’s most important vehicle currency. The BIS reported that it was on one side of 88% of all trades during the period.

    The EUR and the JPY lost market share against the USD, while many currencies from emerging markets increased their share.

    In April 2020, the Chinese Renminbi (RMB) became the 8 th most traded currency, and overtook the Mexican Peso as the 1 st most traded emerging market currency.

    To maximise chances of earning the biggest profits, Forex traders often develop trading strategies around highly liquid, top traded currency pairs.

    One short-term Forex trading strategy that is often used is called “news trading” or fundamental analysis, whereby one trades according to news events.

    Trading around high-impact events consists of investing on the highest volume currency pairs – as they will usually be the most profitable currency pairs to trade.

    This means that traders will invest money during the release of economic data or other news, or during important speeches, or conference press, such as when a central bank decides whether to increase or decrease its interest rates.

    It’s one of the most aggressive and active fundamental strategies, and it’s also a high-risk, as the trading volume, and the associated volatility, are larger than under “normal” trading circumstances.

    To use this strategy, most traders need to be aware of the economic calendar.

    This all depends on the type of trader you are.

    For the short term

    For instance, a short-term trader will focus on the most traded currency pairs with the best bid/ask spread possible to make quick profits thanks to higher volatility.

    For the long term

    On the other hand, a longer-term position trader will not necessarily look for the most liquid or volatile currency pairs.

    Carry trading

    Same goes for those who make currency carry trades.

    This method focuses on the rate differential between the 2 currencies in the aim of making profits based on said difference, as opposed to trying to get the best entry and exit points possible.

    Also, remember that there is a certain degree of correlation between currencies, and consequently between currency pairs.

    If you invest on the EUR/GBP, and the EUR/CHF, both currencies are positively correlated – which means that they tend to evolve in the same direction.

    Because they both have the EUR as a base currency, if the EUR weakens against its major counterparts, then both currency pairs will lose ground, and your portfolio will take a hit.

    For this reason, be sure to diversify your FX portfolio by taking into consideration currency correlations.

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    Name a market that never closes during the working week, has the largest volume of the world’s business, with people from all countries of the world participating every day. Yes, you guessed right – the Foreign Exchange Market (Forex). The market has arisen from the need for a system to facilitate the exchange of different currencies from around the world in order to trade. It is the premier financial market in the world, which reflects the financial dynamics of world trade quite clearly.

    All trade here is a trade-off between the pairs of currencies from two different countries. The famous phrase ‘money never sleeps’ – coined by the well-known Hollywood movie ‘Wall Street’ – sums up the foreign currency exchange market perfectly. No matter what time of day it is, the Forex market will stay open from 5pm EST on Sundays until 4pm EST on Fridays, every week, 24 hours a day during trading days!

    When you begin to trade Forex online, you may find yourself overwhelmed and confused by the sheer number of currency pairs available through the MetaTrader 4 trading terminal. What are the best currency pairs to trade? The answer isn’t straightforward, as it varies with each trader. You need to take the time to analyse different pairs against your own strategy, to determine which are the best Forex pairs to trade on your own account.

    This article will briefly describe what currency pairs are, and will assist you with identifying the best Forex pairs to trade. It will also explain what Forex majors are and whether they will work for you.

    What are Currency Pairs?

    Forex trading – or foreign exchange trading – is all about buying and selling currencies in pairs. For the buying and selling of currencies, you need to have information about how much the currencies in the pair are worth in relation to each other. This relationship is what defines a currency pair. A currency pair quotes two currency abbreviations, followed by the value of the base currency, which is based on the currency counter.

    There is always an international code that specifies the setup of currency pairs. For example, a quote of EURUSD 1.23 means that one Euro is worth $1.23. Here, the base currency is the Euro (EUR), and the counter currency is the US dollar. Thus, each currency pair is listed in most currency markets worldwide. If you would like to learn more about Forex quotes, why not check out our article which explores the topic in greater detail?

    Are Majors Really the Best Currency Pairs to Trade?

    Not surprisingly, the most dominant and strongest currency, as well as the most widely traded, is the US dollar. The reason for this is simply the sheer size of the US economy, which is the world’s largest. The US dollar is the preferred reference in most currency exchange transactions worldwide. It is the dominant reserve currency of the world.

    The following currency pairs (listed below) are not necessarily the best Forex pairs to trade, but they are the ones that have high liquidity, and which occupy the most foreign exchange transactions:

    • EUR/USD (Euro – US Dollar)
    • USD/JPY (US dollar – Japanese Yen)
    • GBP/USD (British Pound – US Dollar)
    • AUD/USD (Australian Dollar – US Dollar)
    • USD/CHF (US Dollar – Swiss Franc)
    • USD/CAD (US Dollar – Canadian Dollar)

    The values of these major currencies keep fluctuating according to each other, as trade volumes between the two countries change every minute. These pairs are naturally associated with countries that have greater financial power, and the countries with a high volume of trade conducted worldwide. Generally, such pairs are the most volatile ones, meaning that the price fluctuations that occur during the day can be the largest.

    Does this mean that they are the best? Not necessarily, as traders can either lose, or make money on the fluctuations. The aforementioned pairs tend to have the best trading conditions, as their spreads tend to be lower, yet this doesn’t mean that the majors are the best Forex trading pairs.

    What is the Best Currency Pair to Trade?

    With over 200 countries in the world, you can find a handful of currency pairs to engage with trading. However, these currency pairs may not have the potential to deliver the best results to traders. So what is the best currency pair to trade? What do most traders trade? What currency pair is worth trading and why? Keep on reading this article to find out the answers to these questions and more!

    Before analysing the best currency trading pairs, it is better to enhance our knowledge on the most popular currencies that can be found in the world of Forex trading. They include:

    • US Dollar (USD)
    • Euro (EUR)
    • Australian Dollar (AUD)
    • Swiss Franc (CHF)
    • Canadian Dollar (CAD)
    • Japanese Yen (JPY)
    • British Pound (GBP)

    Out of these currencies you can find a few popular currency pairs. If you want to achieve success in Forex trading, you need to have a better understanding of the currency pairs that you trade. If you select any of the currency pairs we’re going to discuss below, you will make trading much simpler for yourself, as lots of expert analytical advice and data is available on them.

    Analysis of the Best Currency Pairs to Trade

    Let’s take a detailed look at the currency pairs below:

    • USD/EUR – This can be considered the most popular currency pair. In addition, it has the lowest spread among modern world Forex brokers. This currency pair is associated with basic technical analysis. The best thing about this currency pair is that it is not too volatile. If you are not in a position to take any risks, you can think of selecting this as your best Forex pair to trade, without it causing you too much doubt in your mind. You can also find a lot of information on this currency pair, which can help prevent you from making rookie mistakes.
    • USD/GBP – Profitable pips and possible large jumps have contributed a lot towards the popularity of this currency pair. However, you need to keep in mind that higher profits come along with a greater risk. This is a currency pair that can be grouped into the volatile currency category. However, many traders prefer to select this as their best currency pair to trade, since they are able to find plenty of market analysis information online.
    • USD/JPY – This is another popular currency pair that can be seen regularly in the world of Forex trading. It is associated with low spreads, and you can usually follow a smooth trend in comparison with other currency pairs. It also has the potential to deliver exciting, profitable opportunities for traders.

    All the major currency pairs that can be found in the modern world are equipped with tight spreads. However, this fact is not applicable to the USD/GBP currency pair, because of its volatility. It is perhaps better to avoid the currency pairs that have high spreads. The recommended spread by the trading experts tends to be around 0-3 pips. When it exceeds 6 pips, the trading pair may become too expensive, which can lead towards greater losses.

    Still, it doesn’t mean that you should totally avoid everything that has high spreads. The best way to trade sensibly and effectively in this regard would be to exercise risk management within your trading, so you can effectively manage the risks.

    Special Pairs (Or Exotic Currency Pairs)

    Typically the best pair for you is the one that you are most knowledgeable about. It can be extremely useful for you to trade the currency from your own country, if it is not included in the majors, of course. This is only true if your local currency has some nice volatility too. In general, knowing your country’s political and economical issues results in additional knowledge which you can base your trades on.

    You can find such information through economic announcements in our Forex calendar, which also lists predictions and forecasts concerning these announcements. It is also recommended to consider trading the pairs that contain your local currency (also known as ‘exotic pairs’). In most cases, your local currency pair will be quoted against USD, so you would need to stay informed about this currency as well.

    Conclusion

    The dynamics of foreign exchange trading is an interesting subject to study, since it can provide a boost to the world economy, along with the rise and fall of its financial fortunes. As globalisation becomes a bigger, more pressing issue for most countries around the world, the fate of these pairs is closely interconnected. Make sure you study the foreign exchange market extensively before making an investment.

    There are many Forex pairs available for trading and it is highly recommended to try trading most of them before you choose a particular one to stick with. As Forex trading is risky, try it first on a Demo account with a virtual balance, which contains virtual funds of $10,000. Identifying the best currency pair to trade is not easy. The best way to accomplish this is through hands-on experience. Simply open a Demo account, and start trading on the live markets when you are ready, and you will be well on your way to success in the Forex markets!

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    About Admiral Markets

    Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world’s most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

    This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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