Currency trading is the buying and selling of foreign currencies on the foreign exchange market. The currencies you can trade are known as “major” currency pairs because they have the highest trading volume in Forex markets. These major currency pairs can be traded in any order except for Sterling/Dollar, which sells at a value of $1 per pound.
The Euro is the second most traded currency globally after the U.S. dollar. It’s used as a hedge against volatility in other markets and currencies. If you are bullish on gold but want to protect yourself from losses, buying EUR/USD will allow you to do that. You can lock in profits from your long position in gold while also protecting against losses on other assets.
So how does this work? For buyers and sellers of any asset–gold being the example here–to transact with each other effectively, there needs to be some form of “middleman” that facilitates these transactions between buyer and seller (or vice versa). In trading terms, this middleman comes in three forms: the Bid price, Offer price and Spread. Traders can choose an option based on their risk tolerance.
EUR/GBP is a significant currency pair, and it’s an important one for traders. In fact, EUR/GBP is the world’s second most popular currency pair: it was ranked number 2 based on the volume of trades from May 2017 through April 2019, according to Bloomberg. The combined value of all trades made during this period was nearly 10 trillion dollars.
Global Forex markets see high volumes of AUD/USD trades. It is also one of the most popular pairs to trade and is a central currency pair. The Australian dollar was once pegged against the U.S. dollar but now floats freely. However, it often pairs up against its former partner and is paired with other currencies like the Japanese yen and British pound sterling.
This cross-market pair is exciting because the interest rates in both countries heavily influence the rate of this pair: Australia has low-interest rates, whereas America has much higher ones. This makes investing in this pair especially risky; if you need help understanding how interest rates work or what they mean for your investments (and it’s easy to get confused), you should only trade AUD/USD once you’re more experienced with trading.
It is one of the most prevalent currency pairs worldwide, and one of the most liquid currencies is the USD/JPY. One of the most actively traded currency pairs is the USD/JPY, with a $2 trillion daily average turnover. With such high volumes and liquidity, it’s no wonder why so many traders choose to trade this pair.
These currency pairs have the highest trading volume in Forex trading.
The most popular currency pair globally is USD/EUR, in which traders invest significant amounts. The EUR/GBP is the world’s second most traded currency pair, and AUD/USD and USD/JPY are also popular currency pairs. These currencies have a high daily trading volume because they are all significant currencies with strong economic influence on their respective regions.
Trading the currencies that are traded most frequently will allow you to capitalise on the most significant volume of trades available. In other words, if you want to trade Forex, starting with these popular pairs is a good idea.