The FX market is arguably the largest and with good reason. Daily, traders transact up to $6 Trillion on average. This is usually attributed to the price fluctuations of the major currency pairs that enable the sector to generate such mind-boggling figures.
As a trader, such volumes witnessed provide the perfect opportunity to make money. However, you need to understand that not all national currencies are equal in the FX scene.
All currencies have a different value on the FX scene and traders need to tell apart the best-performing ones from the rest. As such, the sector sees a couple of commonly traded pairs dominate the market at the expense of other minor global currencies.
The USD, for instance, is a significant currency in the forex market and a lot of different currencies peg their value against that of the Dollar. This article will break down the major currency pairs in the forex arena and give insight into which ones offer the best prospects to traders.
From afar, the U.S. Dollar sets itself apart as the most popular currency used to trade forex. The US economy is the largest in the world, and therefore, a lot of trading going on across different territories are influenced by what is happening in the US.
Also, the fact that the forex market metrics are quantified in Dollars goes to show just how significant Uncle Sam’s currency is. Nevertheless, forex trading considers currency pairs.
Pairing USD with the other major currencies is a widely used strategy in the market. This is mainly because the U.S.A. enjoys a strong market position in the global arena.
Anyone getting into the FX market should. in addition, know about the other significant currencies paired with the USD. Here is a breakdown of other critical currencies.
The Euro comes second to the Dollar and is the official currency of the European Union (EU) member countries. It is issued by the European Central Bank to simplify cross-border transactions among member states.
The currency accounts for an average daily trading volume of up to $800 million. It is commonly paired with USD, JPY and GBP.
It is the most significant currency in Asian markets accounting for $500 million worth of trading volume o average each day. Japan is known for its financial stability with low debts, low-interest rates and an overly stable business environment.
Also known as the Pound Sterling, it is the primary currency used in the UK and across her territories. Majorly traded at the London Stock Exchange, the GBP is recognized for its stability and hence is a critical global reserve currency.
Further own-under the Australian Dollar reigns supreme. As Australia is a leading exporter of various commodities such as iron, the AUD serves as a commodity currency. The value of AUD, as a result, is determined by the price of the country’s exports on the global market.
Major Currency Pairs You Should Consider Trading In
Once you get to know the five main global currencies, understanding which pairings are worth trading in is essential. These significant currencies exhibit the highest volatility on the market and their price fluctuations dwarf the rest. In essence, the odds of you making money off the major currencies are promising.
All of these can be traded side-by-side because, in part, of the FX market’s global reach. Nevertheless, some combinations hold much higher prospects of success than others. Here is a rundown of these commonly traded currency pairs.
The pairing combines the two most-traded currencies in the world. Moreover, it is the most popular pair to indulge in accounting for a significant share of the trading volume in the forex market. EUR and USD price movements are regular and dependable especially when you consider trading in the short-term.
Trading USD/EUR necessitate traders to have a good grasp of technical analysis. On the flip side, trading this pair for longer durations requires an in-depth understanding of various fundamental issues that affect their performance.
Technical analysis is a crucial tool used while trading the USD/EUR combination. Some of the indicators to consider are RSE, ATR, MACD, Pivot points etc.
This pair links Wall Street and Europe via the London Exchange. High volatility is a standout feature with this pairing. The fact that you can make a lot of money on large price jumps appeals to any trader. However, the higher your expected rewards, the greater the risk involved.
Even so, this combination links one of Europe’s essential currencies with the Dollar. As such, there is a wealth of information online with in-depth analysis available. It is no wonder then how traders flock to trade the USD/GBP.
As the UK is the fifth-largest global economy, any fundamental issues affecting the economy have a ripple effect on the trading floor. Case in point is the effect of the Brexit situation that led to the deterioration of the value of the GBP.
The USD/JPY offers favourable prospects for traders worldwide and this is mainly attributed to the Asian market forces that drive volatility high. Short-term traders are especially keen on this pair because of the numerous opportunities available to turn a profit.
However, volatility can be a double-edged sword in that price fluctuations can occur drastically. An appealing position can quickly change overnight. Natural disasters are common along the Pacific coastline, and their effects are, magnified in the forex market.
For beginners, the combination features two of the world’s major currencies. As such, there is a wealth of information available including tips and trading strategies you can employ.
For anyone looking to get into the world of Forex trading, focusing your journey on the most commonly traded currency pairs is a worthwhile consideration to make. These pairs hold the lions share in terms of trading volume on the FX scene.
As such, many traders deal with them, and you can get a ton of information about them. Moreover, their significantly higher volatility expressed by these pairs points to a wealth of available opportunities to make money through them.