The forex market is the biggest and most liquid market in the world. It provides exchanges between the currencies of any two countries.
While there are many official currencies used around the globe, not all currencies are actively traded in the forex market. The most liquid and politically/economically stable currencies are usually demanded in high quantities in currency trading.
Today, we’ll be looking at the top currency pairs to trade in the foreign exchange market.
So, what are currency pairs?
Currency pairs are national currencies from two countries which are coupled together for trading on the forex market. All trading done in the foreign exchange market, be it buying or selling, will happen through currency pairs.
Generally, the top currencies which are traded are the Chinese Yuan (CNY), the Swiss franc (CHF), the Australian dollar (AUD), the British pound (GBP), the Japanese yen (JPY), the Canadian dollar (CAD), the Euro (EUR) and the U.S. dollar (USD).
All primary currency pairs contain the U.S. dollar. Generally, the base currency is the trader’s domestic currency, while the second currency is referred to as the quote currency.
Prices of currency pairs are usually expressed by how much of the quote currency will be needed to buy a single unit of the based currency.
What are the different types of currency pairs?
Currency pairs can be classified into 3 categories, namely: cross currencies, commodity currencies and the majors.
Cross currencies are currency pairs that don’t include the USD. These include EUR/JPY and EUR/GBP. Commodity currencies are made up of currency pairs that have a value that is closely linked to commodities like iron ore, coal or oil. Good examples of commodity currency pairs include USD/CAD and AUD/USD.
On the other hand, major currencies are currencies that are the most commonly traded on the foreign exchange market. While this may differ, most will agree that these pairs include GBP/USD, USD/JPY and EUR/USD.
What are the top currency pairs to trade?
This currency pair is the most traded on the foreign exchange market. The pair features the Euro against the U.S. dollar. Its popularity hails from the fact that it is representative of the two largest economies in the world, that is, the United States and the European single market.
The high daily volume of this pair’s transactions ensures that the pair has a lot of liquidity.
This top currency pair’s exchange rate is strongly influenced by the interest rates set by the U.S. Federal Reserve and the European Central Bank.
This currency pair sets the U.S. dollar against the Japanese yen. This currency pair is sometimes referred to as the gopher. This forex pair is also known for its high liquidity, which stems from the fact that the U.S. dollar is the most commonly traded currency globally, while the Japanese yen is the most heavily traded currency across Asia.
The Bank of Japan sets the interest rates for Japan’s economy, which influences the value of the yen.
The strength of this member of the top currency pairs stems from the respective strength of the American and British economies.
If the American economy is growing at a faster rate in comparison with the rate of growth of the British economy, the dollar will likely strengthen against the pound. However, if the British economy is doing better than the American economy, the pound will strengthen against the dollar.
The quote price of this pair is influenced by the interest rates set by the U.S. Federal Reserve and the Bank of England.
This currency pair is made up of the Australian dollar and the U.S. dollar. The value of the former currency is closely linked to the value of the country’s exports, as mineral and metal exports make up a huge proportion of Australia’s gross domestic product.
The pair’s exchange rate is also influenced by the interest rate differential between the Fed and the Reserve Bank of Australia.
This currency pair sets the United States dollar against the Canadian dollar. The strength of the CAD is tied closely to the price of oil, as oil is the primary export of Canada.
If the price of oil increases, the value of the Canadian dollar will strengthen in comparison to that of the U.S. dollar.
Expensive oil will also strengthen the value of the Canadian dollar, because of its close ties to oil. When trading this particular pair, traders may benefit from watching the price of both U.S. crude oil and Brent crude oil as any changes in the oil market will be reflected in the exchange rate of the currency pair.
The above are just a few of the top currency pairs to trade on the forex market and with Accuindex.
High-Risk Investment Warning: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial adviser if you have any doubts.