When you are just starting out in Forex trading, you may hear advice to learn to work with the most volume Forex pairs. Only then should you move on to less well-known currencies. However, even in the environment of the most popular currencies on https://forexstore.com/, you can be successful not only in the initial stages but also later. However, success in trading currency pairs is achieved by those who understand the nature of each currency they deal with, as well as all the factors that can affect the price.
Overview of Major Currency Pairs
When considering the list of most traded Forex pairs, the US Dollar (USD) undoubtedly leads it, being one of the most popular and stable currencies in the world. The price of the USD is regulated by fluctuations in US economic indicators, demand for goods, and situations in countries where the dollar is the main reserve currency or officially or factually used currency. Examples of such usage include El Salvador, Panama, and Ecuador. Therefore, the situation in these regions also affects the value of the dollar.
Euro (EUR)
As the official currency of EU countries, the euro is in second place in terms of popularity. The daily trading volume of the euro reaches almost $1.1 trillion. The euro is considered one of the best Forex pairs because it is used in 19 out of 28 EU countries. Additionally, it is the second (after the US dollar) reserve currency — about 20% of the world’s monetary reserves are held in it. If you trade the euro, you will need to closely monitor all political news in the EU, both general and individual country data within the bloc. Considerations include population employment, country GDP, elections, central bank meetings, and other news that may affect the euro’s price.
Japanese Yen (JPY)
In terms of trading volume, the Japanese Yen ranks third, the official currency in Japan (so you will primarily monitor news in this region). Almost 5% of the world’s currency reserves are held in Japanese Yen. When choosing to trade JPY, consider factors such as the export of goods, demand for Japanese products, economic releases with GDP data, the industrial production index, and more. Note that China also has a strong influence on the price of JPY. Being a powerful competitor in industry and export of goods, China’s activities can increase or decrease the value of the Yen. Additionally, Japan is a major importer of oil. When the price of “black gold” rises, the price of the Yen falls.
Among the most popular currencies in Forex, you will also definitely see:
- British Pound (GBP), the value of which is influenced by events in Britain, its reports, political activities, and other events. For example, Brexit once changed the price of currency.
- Australian Dollar (AUD) — the currency that holds 1.8% of the world’s currency reserves. The value of AUD largely depends on the country’s external obligations, as well as other economic and political factors (which have already been mentioned regarding other currencies).
- The Canadian Dollar (CAD), Canada’s official currency, ranks sixth in popularity worldwide. Its value is closely related to the price of all the natural resources owned by Canada. Furthermore, having close economic ties with the US, the Canadian currency is in close correlation with economic indicators in the US.
Analysis of Popular Currency Pairs
In the list of most traded Forex pairs, players rarely change places. Considering the uniqueness of each currency mentioned a bit earlier, traders enjoy working with such pairs:
- EUR/USD
- USD/JPY
- GBP/USD
- AUD/USD
- USD/CAD
These pairs represent the largest economies in the world, thus being the most traded currency pairs globally.
Factors Influencing Currency Popularity
Therefore, the popularity of a currency pair is most influenced by the economic indicators of the country to which it belongs. For example, the US dollar ranks first, being the primary currency of the country with the currently strongest economy. Currency value and, consequently, popularity are also influenced by data such as political stability, oil trading volumes, gold, agricultural products, interest rates, and central bank policies. One cannot overlook inflation rates and general economic trends. Virtually everything that happens in politics, economics, and science and even natural factors affects currency popularity. Therefore, it’s always a dynamic system.
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Trading Considerations for Popular Currency Pairs
To trade currency pairs effectively, you must work with some of them constantly to understand how their prices can move and which world events can influence them. Focusing equally well on a significant number of different currencies can be challenging, and it’s easy to miss important details and nuances leading to price fluctuations, changes in trends, decreases or increases in trading volumes, etc. Meanwhile, you should consider volatility, spreads, the specifics of your trading strategy, currency liquidity, the best trading hours, news, and announcements to monitor. Moreover, this set of characteristics is unique to each currency.
Summary
The major and most popular trading currency pairs allow for effective profit-making on long-term and short-term price fluctuations. Popular currencies appeal to traders because they are more stable and reliable than local and lesser-known currencies. Additionally, more significant political, geo-economic, and other factors must come into play to change the currency price significantly. Therefore, when working specifically with popular currency pairs, liquidity is higher, the market is broader, and risks are lower. All that remains is to engage your chosen trading strategy, be vigilant, and adapt to changing market conditions to profit from price differences in currency pairs.
