The FX market remains open 24 hours a day, from Sunday evening to Friday night, taking advantage of the time zone differences between London, Tokyo, and New York. This permits currency traders to enter and close positions at any time, unlike in other markets, so forex market hours are considered more flexible.
CFD trading and spread betting are both leveraged products that may be used to trade forex. This implies that although there is a potential to make a lot of money, there is also a danger of losing a lot of money since traders only need to put down a percentage of the whole trade value, known as a margin requirement.
This article will guide some of the most popular forex pairs to trade right now.
Currency pairs verify the value of one currency to that of another. They are divided into the base currency and the secondary quote currency. The EUR/USD, possibly the most common currency pair in the world, is an example, with its price representing how much of the quote currency, the US dollar, is needed to purchase one unit of the base currency, the Euro.
The bid and an ask price exist for each currency pair. The bid price is the highest price a buyer is willing to pay for the currency, the ask price is the lowest price a seller is willing to accept for the currency, and the bid-ask spread is the difference in pricing between the two currencies.
Some forex traders prefer to trade on currency pairs with a lower or tighter spread since it reduces the total costs of the trade. However, some traders prefer to trade on volatile currency pairs with wider spreads and lower liquidity to profit from price fluctuations. “I don’t understand the currency market.” – Read this article for beginners.
In general, forex pairs are classified into three types. The majors, commodity currencies, and cross currencies are as follows:
Many individuals don’t understand how major currency pairs work, although it usually entails buying and selling currencies. The forex market never sleeps since the currencies, both base and quote, are always moving. The Euro might weaken or strengthen versus the US dollar. This enables traders to sell or buy to profit based on the lots they purchase.
For example, if the EUR/USD quote is 1.3560, it implies that to buy one unit of EUR, you must pay 1.3560 USD. You will receive 1.3560 US dollars if you sell.
Now, a trader may only wish to buy the EUR/USD pair if he believes the EUR will appreciate versus the US dollar, known as going long. If the trader believes the Euro will fall in value, he might sell the EUR/USD pair (go short).
Here are the key steps one can follow while choosing the right currency pairs:
If you’re not biased about which pair to trade, start by creating a watchlist of all your favourites. Creating this watchlist allows you to focus on the specific pairs you’ve spent time studying, giving you a better chance of choosing the right one out of the selected handful.
On forex brokers such as IG, you can create a watchlist by selecting the pairs you love trading and putting them in a special category. Many rookie traders struggle to focus because they attempt to trade many assets simultaneously. This is frequently the consequence of greed and a desire to benefit from any price swings in the currency market.
Currency pairs with desirable characteristics should be on your watchlist. Of course, there is no hard and fast rule here since you must choose the characteristics that work best for you.
After creating a watchlist, go through the chosen currencies’ major economic reports and news data. From a fundamental perspective, the idea is to understand the anticipated direction of price movement.
Getting micro and macroeconomic reports may help steer your trades and technical analysis. Inflation, CPI (consumer price index), GDP (gross domestic product), and the exchange rate all substantially influence currency movement. New traders are prone to rushing into technical analysis without understanding the forces driving price movement.
Reviewing news and economic data also helps you prepare for the trading day since news releases may lead to price spikes and market gaps. Being informed of upcoming news puts you ahead of the game since it allows you to plan your trades accordingly.
Fundamental analysis helps you to understand a broad perspective of the forex market. Technical analysis, on the other hand, is an excellent tool for determining the best trade entries and exits based on your bias.
Please make sure you know the micro and macroeconomic circumstances before analysing price charts. This ensures you filter the pairs on your watch list and trade only currency pairs whose technical and fundamental analyses align.
You may examine price charts using indicators, chart patterns (read our article on forex chart patterns), or trading theories (support and resistance, Elliot waves, smart money concepts, and so on) to determine optimal price levels or critical levels that will guide your trade execution and management.
Intermarket analysis is a proactive way to add confluence to your trades. It is not required for all traders, but it is a great way to increase your win rate by increasing your probability of profit. To do so, you must examine financial assets correlated to your trading currency pair(s). This correlation could be positive or negative – the goal is to confirm the movement of one asset by the movement of another.
For example, if you trade the Canadian dollar, you can examine the oil market to see if the Canadian dollar strengthens as oil prices rise. If you locate two positively correlated assets and are poised to move in the same direction, your trade has a better chance of succeeding.
Currency pairs can also be used in Intermarket analysis. For example, if the EUR/GBP currency pair is rising and the dollar is falling, you should consider buying EUR/USD rather than GBP/USD. The EUR/GBP uptrend shows that the Euro is currently stronger than the British pound.
As a result of the weakness of the British pound, the EUR/USD pair will have a stronger uptrend than the GBP/USD pair. This analysis can assist you in selecting the appropriate currency pair when trading correlated assets such as the Euro and the British pound.
Different trading sessions with varying levels of volatility and liquidity exist across all pairs. If you trade the London and New York sessions, major CAD and CHF pairs will be volatile. JPY, NZD, and AUD pairs are usually more volatile during the Asian session.
Finding the right currency pair to trade may be difficult at first, but as you practise these five steps, you will improve and achieve better trading results as you constantly choose the right currency pairs.
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Here are the top traded forex pair in the world:
EUR/USD is the market’s most traded forex currency pair, accounting for 24.0% of daily forex trades in 2019. The EUR/USD pair is famous because it represents the world’s two largest economies: the EU (European Union) and the United States.
Because of the epic daily volume of EUR/USD transactions, the pair has a lot of liquidity, which results in tight spreads. Liquidity and tight spreads are enticing to traders because they allow large trades to be made with minimal influence on the market.
The EUR/USD rate is determined by several factors, including the interest rates set by the ECB and the Fed. This is because the currency with the dominant interest rates will generally be in more demand since higher interest rates provide a better return on their original investment. If, for example, the ECB established higher interest rates than the Fed, the Euro would certainly rise against the dollar.
The USD/JPY forex currency pair, sometimes known as ‘the gopher,’ comprises the US dollar and the Japanese yen. It is the market’s second most used currency pair, accounting for 13.2% of all daily forex transactions in 2019.
USD/JPY, like EUR/USD, is noted for its high liquidity, which stems from the fact that the yen is Asia’s most heavily traded currency, while the US dollar is the world’s most commonly traded currency.
The Bank of Japan (BoJ) sets interest rates for Japan, which impacts the yen’s value compared to the US dollar.
GBP/USD is colloquially known as ‘cable’ because of the deep-sea cables that deliver bid and ask quotes between London and New York. This pair accounted for 9.6% of all daily currency transactions in 2019.
GBP/USD, like most other currency pairings, derives its strength from the respective strength of the British and American economies. If the British economy grows faster than the American economy, the pound is expected to strengthen versus the dollar. However, the reverse is true if the American economy outperforms the British economy.Forex signals Telegram - The best way to receive signals? — 2023
The quoted price of GBP/USD, like the first two most popular currency pairings on our list, is affected by the respective interest rates set by the Bank of England (BoE) and the Federal Reserve (Fed). The subsequent differential in interest rates between the pound and the dollar may greatly impact the price of the GBP/USD currency pair.
AUD/USD, sometimes known as the ‘Aussie,’ reflects the Australian dollar versus the US dollar. In 2019, it accounted for 5.4% of daily forex trades. The Australian dollar value is strongly tied to its exports, with metal and mineral exports such as iron ore and coal accounting for a large proportion of the country’s gross domestic product (GDP).
A drop in the value of these commodities on the global market would almost certainly result in a drop in the Australian dollar value. For AUD/USD, the US dollar will strengthen, requiring fewer US dollars to purchase one Australian dollar.
The AUD/USD exchange rate is impacted by the interest rate differential between the Reserve Bank of Australia (RBA) and the US Federal Reserve, in the same way, the previously mentioned currency pairs are. For example, if US interest rates are low, the USD would likely weaken against the AUD, making it more expensive to buy one Australian dollar.
The USD/CAD pair is known colloquially as the ‘loonie’ after the loon bird that appears on Canadian dollar coins, and it reflects the pairing of the US dollar with the Canadian dollar. USD/CAD exchanges accounted for 4.4% of daily forex trades in 2019. Because oil is Canada’s principal export, the strength of the Canadian dollar is closely linked to the price of oil.
Because oil is priced in US dollars on global markets, Canada may earn a significant amount of US dollars from oil exports. As a result, if oil prices rise, the Canadian dollar would certainly strengthen against the US dollar.
Generally, the US dollar weakens as the price of oil increases since a weaker dollar requires more US dollars to be converted into foreign currencies to purchase the same amount of oil as before. As a result of the close relationship between the Canadian dollar and oil price, expensive oil suggests that the Canadian dollar will likely strengthen.
As a result, while trading USD/CAD, traders should keep an eye on the price of both Brent crude and US crude, as any fluctuations in the oil market would most likely reverberate in the exchange rate of this forex pair.
The USD/CNY currency pair combines the US dollar and the Chinese renminbi, often known as the yuan, and accounted for 4.1% of daily forex trades in 2019.
Since the ignition of the US-China trade war, the yuan has fallen in value relative to the US dollar. This is due, in part, to the Chinese government, which has allowed the yuan to decline in the knowledge that it would make the country’s exports cheaper and increase its already sizable market share in countries other than the United States.
You may trade the USD/CNH currency pair with any broker; CNH is the offshore version of the yuan traded outside mainland China. Only when traded on the onshore Chinese market is the yuan referred to as CNY. CNH has traditionally been less tightly controlled by the Chinese government than CNY, making it more volatile. Because of this volatility, it may be a better choice for speculative trading.
Traders should keep an eye on the trade war between the United States and China, as any developments will likely impact the price of this currency pair.
The USD/CHF currency pair, sometimes known as the ‘Swissie,’ comprises the US dollar and the Swiss franc. The USD/CHF currency pair is popular because the Swiss financial system has traditionally served as a safe haven for investors and their capital.
Consequently, traders often resort to CHF during times of increasing market volatility, while the Swiss franc typically sees less interest from traders during times of more market stability. During times of increased volatility, the price of this pair is likely to fall as the CHF strengthens versus the USD due to increased investment.
CHF is not as actively traded as the six preceding currency pairings on this list since it is used mostly during times of economic volatility or as a safe haven. In 2019, however, USD/CHF accounted for 3.6% of all daily forex transactions.
USD/HKD compares the Hong Kong dollar to the US dollar. Between 2016 and 2019, the trading volume of this pair more than doubled, going from 1.5% to 3.3% of all daily forex transactions.
The rise might be attributed to the Hong Kong protests that dominated 2019. Protests erupted as a result of the attempted implementation of the Fugitive Offenders Amendment Bill, as well as allegations of police brutality against Hong Kong people.
The protests started around a month before the data was collected. Thus, they are likely to have affected USD/HKD trading volume. This might be because the increased media coverage encouraged many traders and speculators to focus on the Hong Kong dollar, assuming that any news from the city would impact its value.
The Hong Kong dollar’s value is linked to the US dollar in a unique system known as a linked exchange rate. The Hong Kong dollar can fluctuate between HK$7.75 and HK$7.85 to US$1, and traders may profit from any price movements within this range.
The EUR/GBP pair combines the Euro and the British pound, which is often regarded as one of the most difficult to forecast price movements. Because of the UK’s proximity to Europe and the subsequent significant trade relations between these two economies, the EUR and GBP have a historical link.
Despite the difficulties in predicting its movements, EUR/GBP transactions made for 2.0% of daily trades in 2019, making it the ninth most traded currency pair on our list.
Just like with the other currency pairs on this list, traders should keep an eye out for any ECB and BoE announcements that might affect the euro and pound exchange rates, increasing volatility.
This currency pair’s price has fluctuated wildly in recent years, owing primarily to the uncertainty surrounding Brexit. The high degree of volatility might be attractive to traders, but it is important to have a risk management strategy before opening a position in a volatile market.
The tenth pair on our list is USD/KRW, which pits the US dollar against the South Korean won. This forex pair made for 1.9% of daily forex transactions in 2019 – the first year that USD/KRW made the top ten most traded currencies list.
South Korea’s economy has grown since the turn of the century to become the fourth largest in Asia and the eleventh largest worldwide as of November 2019. This might be one of the reasons for the increasing USD/KRW activity, as traders and speculators seek exposure to markets other than Japan, China, and Hong Kong.
South Korean economic growth has been so impressive, particularly following the end of the Korean War in 1953, that it is commonly referred to as the Miracle on the Han River.
This expansion is now being capitalised on, and South Korea is a member of the United Nations, the Organisation for Economic Cooperation and Development (OECD), and the Group of 20 (G20), making the country and its currency an appealing investment opportunity for many market participants.
Scalpers tend to trade the most popular pairs, and their favourites are EUR/USD, USD/CHF, GBP/USD, and USD/JPY. Scalpers prefer these pairs because they move slowly in the market and have the highest trading volume.
Furthermore, as these pairs are very stable, scalpers may use them to make consistent, if conservative, profits.
Volatility indicates to traders how much a currency’s price will change from its current level over a certain period of time. Because of their higher market liquidity, major currency pairs are generally less volatile than emerging currencies. EUR/USD pairs are less volatile than USD/ZAR pairs (South African rand).
For major currencies, the most volatile are the AUD/JPY, NZD/JPY, AUD/USD, CAD/JPY, and AUD/GBP.
The most significant difference between trading high volatility currencies and low volatility currencies is that high volatility currencies move more pips over a given time than lower volatility currencies. This is the source of the increased risk. High volatility pairs are also more prone to slippage.
While EUR/USD leads the way in terms of daily traded volume in forex pairs, there are several other feasible currency pairs with high liquidity that traders may pick from to realise a profit. Before selecting a currency pair to trade, traders should consider several factors.
They should conduct their own technical and fundamental analysis to determine whether the currency pair is a viable trading option at that time, depending on central bank announcements or ongoing trade disputes.
The Euro/US dollar pair is regarded as the most profitable currency pair in forex for its High liquidity. The European economy is the second-largest in the world, behind the United States.