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A currency pair is a way of displaying how much of one currency you need to purchase another. Every individual currency is given a three-letter code – such as USD for the US dollar or EUR for the Euro. Using those two as an example, the pair would be displayed as USD/EUR. In this case, the USD is the base currency and the EUR is the quote currency. One can strengthen or weaken in relation to the other, which is where the opportunities arise for forex traders.
Find out more in our comprehensive guide to currency pairs.
The Bank for International Settlements (BIS) published its Triennial Central Bank Survey in October 2022. The report contained data on the average daily over-the-counter (OTC) foreign exchange turnover, and all the figures quoted in this guide are accurate as of that release. Here's a rundown of the top five most traded currency pairs.
Average daily turnover: $1.71 trillion ($1.58 trillion in 2019)
Proportion of all forex trades: 22.7% (24% in 2019)
The most traded currency pair in the world is the US dollar and the Euro – USD/EUR . It combines the two biggest global economies, each of which can have a significant impact on the market in their own right. USD/EUR traders will keep a keen eye on interest rate announcements from the US Federal Reserve and the European Central Bank, which are likely to influence the value of either currency in relation to the other. As the most commonly traded currency pair, USD/EUR tends to be relatively stable but the tight spreads can facilitate larger positions without disrupting the market.
Average daily turnover: $1.01 trillion ($871 billion)
Proportion of all forex trades: 13.5% (13.2%)
The latest BIS report reveals that the Japanese yen (JPY) is the third most traded currency in the world, behind the US dollar and the Euro. The Bank of Japan publishes regular financial reports, which USD/JPY traders will pay close attention to. Meanwhile, Japan's typically strong economy is partly underpinned by a thriving export industry, with automobiles and technological products featuring heavily.
Average daily turnover: $714 billion ($630 billion)
Proportion of all forex trades: 9.5% (9.6%)
The US dollar and the British pound are respectively first and fourth on the list of most traded individual currencies. As a pair it sits third and USD/GBP is sometimes referred to as 'cable', which is a nod to the underwater telegram wires that were used to communicate quotes between New York and London. In the more recent past, major political developments such as Brexit have had a significant impact on the pound's performance. And as with any of the world's most traded currency pairs, USD/GBP traders will monitor announcements from the Federal Reserve and the Bank of England with great interest.
Average daily turnover: $495 billion ($270 billion)
Proportion of all forex trades: 6.6% (4.1%)
Of the five most traded currency pairs, the US dollar and Chinese yuan has seen the greatest surge in popularity. In the three years between the latest BIS surveys, the average daily turnover of USD/CNY trades rose 83%. You may see the abbreviation CNH, which refers to when the yuan is traded outside mainland China. CNH can be more volatile than CNY because it is not as closely regulated by the Chinese authorities. Meanwhile, some predict that the yuan will still show signs of volatility as China, the epicentre of the coronavirus outbreak, continues its recovery from the pandemic.
Average daily turnover: $410 billion ($287 billion)
Proportion of all forex trades: 5.5% (4.4%)
The Canadian dollar was pegged to its US counterpart until 1970, when the decision was made to float it freely on the market due to "heavy upward pressures". The USD/CAD pair is sometimes described as the 'loonie' – a reference to the loon bird that appears on the latter's $1 coin. Canada's primary export is crude oil, so traders will monitor the price of that commodity as it will closely reflect the performance of the CAD and, by extension, its value in relation to the USD.
There are a number of reasons why it could prove advantageous to add the most traded currency pairs to your portfolio:
There are no guarantees with any form of trading, and it's important that you're aware of all the potential pitfalls before taking up any positions in the forex market:
There are a few key steps you need to take before you begin trading:
You can trade currency pairs via derivative products such as contracts for difference (CFDs) . Both are leveraged forms of trading – although there are some key differences in the mechanics of how they work.
There are a number of different ways you can trade currency pairs. You might prefer a short-term strategy like day trading. Alternatively, you could take a longer-term view with position trading. Find out more in our guide to forex trading strategies or check out our articles on:
Even for popular assets like the most traded currency pairs, opening and closing positions require consideration and plenty of research. Most traders would recommend a combination of fundamental and technical analysis. The former refers to your monitoring of the various news developments that could impact a currency's performance. The latter involves the use of charts, graphs and other analytical tools that help you identify trends and patterns.
Before you enter any position, you need to be aware of the potential downside and you should only trade at a risk-reward ratio that you are comfortable with. One effective method of mitigating your risk is using a stop loss. These are pre-set conditions, determined by you, that will automatically close a position when an asset's value reaches a certain price. So, you are effectively capping your losses in the event that the market moves against you.
With Tradu you can trade USD/EUR, USD/JPY, USD/GBP and all the other most commonly traded currency pairs through our proprietary platform . We can offer an outstanding selection of analytical tools to help you shape your strategy as well as rapid execution of trades. All that is available via a single login, so open your account with Tradu today and start exploring the possibilities that the world's most traded currency pairs have to offer.