What Are the 5 Most Commonly Traded Currency Pairs?

The Big Five

When we say “the big five,” you probably think we’re referring to those five exciting animals that can often be seen on safari in Africa. In this case, we are referring to the top five most traded currency pairs on the forex market. There are hundreds of potential currency pairs on the market, but these are the big guns: the pairs that are most likely to bring in a worthwhile trade. Forex is a volatile market, so many traders go for the transactions they feel are the safest; those trades would definitely involve these pairs. If you trade forex, read on for info on the most traded currency pairs.

Euro and US Dollar

The EUR/USD has been the most commonly traded currency pair on the market for quite some time. The transactions carried out using this pairing make up more or less 24% of all trades conducted on the market worldwide; that’s quite a substantial chunk! The popularity of this pairing is due entirely to the fact that these currencies represent the two most robust economies in the world; the European Union and the United States of America. The fact that this pair is traded so often means that it has a lot of “liquidity,” which leads to tight spreads in trades. Both of these factors are very appealing to traders because they indicate that you can make large trades and have a very minimal impact on the market. The exchange rate between the two currencies is determined by a variety of factors, starting with the interest rates imposed by the European Central Bank as well as the US Reserve Bank. Whichever currency has a higher interest rate will become the most in demand because the higher interest rate offers a far better return on a trader’s investment.

US Dollar and Japanese Yen

This pair is commonly referred to as “the gopher.” The second most traded currency pair in the world makes up more or less 13.2% of all trades carried out on the worldwide forex market every day. The USD/JPY pairing is also known for its high liquidity because the Yen is the most traded currency on the Asian market and the US Dollar is the most traded in the world. In a similar situation to the EUR/USD pair, the interest rates are set by the Bank of Japan and the Federal Reserve Bank of America and influence which way one should trade and the value of each currency.

Great British Pound and US Dollar

This pairing is often called the “cable,” in reference to the enormous underwater cables that carry the data containing bid and ask quotes to and from London and New York. This pair makes up more or less 9.5% of all forex trades conducted on the market every day; while it’s only the third most traded pair, this is still an enormous number of transactions. Once more, the strength of this currency pair comes from the independent strengths of the two economies involved: the British and American ones. If the UK economy begins to pull ahead in the growth race, the pound will probably strengthen against the dollar. The reverse will be true if the American economy pulls ahead. The interest rates here are set by the Bank of England and, you guessed it, the US Federal Reserve Bank.

Australian Pound and US Dollar

The “Aussie” pair contains the US dollar, just like the previous three pairs on the list, showing how strong an economy the US one is. The other half of the pair is, naturally, the Australian dollar. This pair accounts for about 5.4% of all daily trades in the forex market. The value of the Australian dollar is not as closely linked only to interest rates as many of the other currencies on the list: it also depends on the country’s metal and mineral exports as they make up a large amount of the country’s domestic income. Any depreciation in these values would plunge the value of the AUS dollar, which would mean the US dollar would become stronger. The interest rate does have an impact here as well and is set by the Reserve Bank of Australia and the US Federal Reserve Bank.

US Dollar and Canadian Dollar

Last but certainly not least, we have “the loonie”: the Canadian dollar and US dollar pairing. The bird that appears on the Canadian dollar coins is called the loon, hence the interesting name. According to surveys, this pair makes up a total of 4.4% of all trades conducted on the market every day. The Canadian dollar is heavily impacted by the oil price, as oil is Canada’s main export; if the oil price goes down, so does the CAD, which means that the USD will strengthen in the pair.

Wrap Up

If you understand how each pair works together and what drives each currency’s value, you’ll be well set up to make a strong trade, whichever currency you choose!