The world’s largest and most liquid market is the foreign exchange market. It allows you to swap currencies between any two countries, including major, minor, and exotic currencies. As a result, the market offers hundreds of different currency pairs to trade.
What is Currency Pairs in Forex?
A quotation for two currencies that are not the same is a currency pair. It’s the price you’d pay for a unit of another currency in one currency. When a trader gets quoted EUR/USD 1.13. For example, it indicates the trader may exchange 1 Euro for 1.13 US Dollars. When one currency’s value fluctuates, the value of another fluctuates as well. If the EUR/USD quote rises from 1.13 to 1.15 tomorrow. Then this indicates that the Euro has risen against the US dollar. Or that the US dollar has depreciated against the Euro, since purchasing 1 Euro will cost more US dollars.
Most Profitable Currency Pairs In Forex:
EUR/USD is the most popular currency pair on the market. Accounting for 24.0 percent of all daily forex trading in 2019.The EUR/USD pair’s appeal stems from the fact. That it represents the world’s two largest economies: the European Union and the United States. Because of the huge daily number of EUR/USD transactions, the pair has a lot of liquidity, resulting in narrow spreads. Traders want liquidity and tight spreads because they allow them to make massive deals with minimal influence on the market.
The interest rates set by the European Central Bank (ECB) and the US Federal Reserve. They are among the variables that influence the EUR/USD exchange rate (Fed). This is because higher interest rates attract more buyers since they provide a better return on their original investment. If the ECB, for example, had set higher interest rates than the Fed. The euro would very certainly rise against the dollar.
The USD/JPY currency pair, sometimes known as ‘the gopher,’ comprised of the US dollar and the Japanese yen. It is the market’s second most traded currency pair, accounting for 13.2% of all daily forex transactions in 2019. USD/JPY, like EUR/USD, noted for its high liquidity. Which stems from the fact that the yen is Asia’s most actively traded currency. And the US dollar is the world’s most widely traded currency.
The Bank of Japan (BoJ), like the Fed and the ECB. Sets interest rates for the Japanese economy, which has an impact on the yen’s value against the US dollar.
The pound sterling and the US dollar are the currencies in this pair. Because of the deep-sea cables used to transport the bid and ask quotes between London and New York. The GBP/USD known as the ‘cable’ currency. The GBP/USD pair accounted for 9.6% of all daily currency transactions in 2019. 1
The strength of the GBP/USD currency combination, like that of most other currency pairings, is based on the relative health of the British and American economies. If the British economy grows faster than the American economy, the pound will certainly increase against the dollar. If, on the other hand, the American economy outperforms the British economy, the converse is true. The quotation price of GBP/USD influenced by the respective interest rates. Set by the Bank of England (BoE) and the Federal Reserve (Fed). Much like the first two most popular currency pairings on our list. The resulting interest rate disparity between the pound and the dollar can have a significant impact. On the price of the GBP/USD currency pair.
The Australian dollar represented by the AUD/USD symbol, known as the ‘Aussie’. In 2019, it accounted for 5.4 percent of daily FX trading. The value of the Australian dollar strongly links to the value of the country’s exports. With metal and resource exports such as iron ore and coal accounting for a significant amount of the country’s GDP (GDP).
A drop in the value of these commodities on the global market. It would almost certainly result in a drop in the Australian dollar’s value. In the case of the AUD/USD currency combination, this implies the US dollar would get stronger, therefore it would cost less US dollars to buy one Australian dollar.
The interest rate gap between the Reserve Bank of Australia (RBA) and the US Federal Reserve affects the AUD/USD exchange rate in the same way as it affects the previously stated currency pairings. For example, if interest rates in the United States are low, the dollar would likely decline versus the Australian currency, making it more expensive to acquire one Australian dollar.
The quotation price of GBP/USD is influenced by the respective interest rates set by the Bank of England (BoE) and the Federal Reserve (Fed), much like the first two most popular currency pairings on our list. The resulting interest rate disparity between the pound and the dollar can have a significant impact on the price of the GBP/USD currency pair.
Because of the loon bird that appears on Canadian dollar coins, the USD/CAD is known as the ‘loonie,’ and it reflects the coupling of the US dollar with the Canadian dollar. USD/CAD exchanges accounted for 4.4 percent of daily forex trading in 2019. 1 Because oil is Canada’s principal export, the strength of the Canadian dollar is directly related to the price of oil.
Canada may generate a substantial supply of US dollars from oil exports since oil is valued in US dollars on global markets. As a result, if the price of oil rises, the Canadian dollar would most certainly strengthen against the US dollar. When the price of oil rises, the US dollar weakens as a general rule, since a weaker dollar requires more US dollars to be exchanged into foreign currencies to buy the same quantity of oil as before. As a result of the strong relationship between the Canadian currency and the price of oil, pricey oil means the Canadian dollar will certainly appreciate.
As a result, while trading USD/CAD, traders should keep an eye on the price of both Brent and US crude, as any changes in the oil market would almost certainly affect the exchange rate of this currency pair.
The USD/CNY currency pair combines the US dollar and the Chinese renminbi, often known as the yuan, and accounted for 4.1 percent of daily forex trading in 2019. Since the commencement of the trade war between the United States and China, the yuan has been steadily losing ground against the dollar. This is due in part to the Chinese government’s decision to allow the yuan to decline in the hopes of lowering the cost of exports and expanding the country’s already considerable market share in nations other than the United States.
You may trade the USD/CNH currency pair with IG, with CNH denoting the offshore variant of the yuan traded outside of mainland China. Only when the yuan is exchanged on the onshore Chinese market is it referred to as CNY. CNH has historically been less closely regulated by the Chinese government than CNY, making it more volatile. Because of its volatility, it may be a better option for speculative trading. Traders should keep a watch on the trade war between the United States and China, as any developments are likely to have an impact on the price of this currency pair.
In summary, the best trading circumstances are provided by a currency pair’s popularity. As a result, you should begin by using such pairings. Make sure to look at the intraday activity of a currency pair before deciding on it. Some of them are only exchanged at certain times of the day. A currency pair’s trading volume does not have a constant value. The data and values presented in the article were obtained during the authoring and may vary over time.
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