So, you want to be a Forex trader. But what currency pairs can you trade in the Foreign Exchange market? Well, lots of them. But it’s not as simple as that. There are 180 currencies in the world so how are you supposed to know what they’re all called and which of these currency pairs are best for you to trade?
In essence, while you can trade almost any currency pair in theory, you’ll find that there are some currencies that are a tad more popular than the others. In fact, more than 85% of all global Forex market transactions happen with only 7 currencies known as major currency pairs. The most traded currency pair of all in the Foreign Exchange market– the Euro vs the US dollar. But we will get to that later.
For now, pull up a chair and get cozy, because you’re about to learn all there is to know about currency names and the most traded currency pairs out there.
Currency symbols always include three letters. The first two letters stand for the name of the country and the third letter symbolizes the name of that country’s currency, which is usually the first letter of the currency’s name.
Let’s look at the USD for instance…US stands for the United States while D stands for the dollar. Simple, right?
More examples? The Canadian Dollar symbol is CAD, the Japanese Yen symbol is JPY, the New Zealand Dollar symbol is NZD, and the Australian Dollar symbol is AUD. And, ironically, the Euro symbol is… EUR. But you probably know this one already. Why? because these are all major currencies and are widely used in the global economy and international trade.
Fun Fact: The US Dollar is the most traded currency, being part of almost 90% of global trades in the FX market.
OK, remember how we said we’d get down and dirty with the details of the most popular and most traded currencies in Forex trading? It’s time.
The most popular and widely traded currency pairs in the Forex market are referred to as major currency pairs or major forex pairs. These represent some of the world’s largest economies and have greater involvement from central banks.
Some examples of the major currencies include USD, EUR, GBP, JPY, CAD, CHF, NZD, AUD. Do you know the name of all of the currencies above? Don’t worry if you don’t!
Fun fact: “Buck” isn’t the only nickname for USD. There’s also: benjis, paper, moolah, cheese, loot, cheddar, scrilla, dead presidents, and cash money. In Peru, the U.S. dollar is called a Coco, after George Washington whose portrait is on the dollar note.
Taking the above into consideration, there are 7 major currency pairs that include the Euro Dollar (EUR/USD), Dollar Yen (USD/JPY), British Pound US dollar (GBP/USD), Canadian Dollar US dollar (CAD/USD), Australian Dollar US dollar (AUD/USD), New Zealand Dollar US dollar (NZD/USD), and Swiss franc US dollar (USD/CHF).
Apart from major currency pairs that account for more than 85% of the trading volume in the forex market, there are also other combinations of currencies – minor cross pairs and exotic pairs.
Cross currency pairs include all major currency combinations excluding the US dollar. For example, the EUR/JPY is a cross currency pair as it includes two major currencies. Other minor forex pairs include GBP/JPY, AUD/NZD, EUR/GBP, etc.
Exotic currency pairs are made of a major currency pair and another currency of an emerging or a smaller economy. For example, the USD/SEK is an exotic currency pair. Other examples of exotic forex pairs include EUR/TRY, GBP/SGD, AUD/BRL, etc.
FYI: Commodity currencies, or commodity currency pairs are any currencies of countries with large amounts of commodity production and, thus, these commodity currencies are heavily correlated with commodity prices. Some of the most popular commodity currency pairs include the Australian Dollar, the New Zealand Dollar, the US dollar, the Canadian Dollar, the Russian Ruble, Norwegian Krone, Brazilian Real, and the South African Rand.
So, you are probably asking yourself what’s the best currency pair to trade as a beginner?
Well, that very much depends on your risk tolerance and the trading strategy you are going to use. Still, we can genuinely say that trading a heavily traded currency pair could be easier due to the wide coverage on the news, tighter buy and sell spread, and the high liquidity. These are some of the reasons why forex traders usually decide to focus on major currency pairs and develop their forex trading strategy around these forex pairs.
Therefore, if you’re just starting out your trading journey and you are developing your own trading strategies, it’s advisable to choose a widely traded currency pair like the EUR/USD, USD/JPY, or GBP/USD. With these major currency pairs, there’s enough market volatility and trading volume to exploit price fluctuations.
Beyond that, there’s more data and information from the country’s reserve bank on FX and financial sites than the information available about other currencies (like exotic pairs and cross pairs).
Learn more about currency pairs in the next lesson.