Foreign Exchange (Forex) is currently the biggest financial market in the world. Broker Notes’ statistics showed that its trading volume is quadruple that of the global GDP, trading over $5.3 trillion (£3.9 trillion) each day. Although, this is not surprising considering that it runs 24 hours a day – currently the only market to do so.
Experts claim that the Forex market is the easiest of all the financial markets to start, emphasising that most people will have already made a Forex trade via a simple currency conversion during their vacation.
Types of Currency Pairs
Before officially having a try at it, it’s important to note first which currency pairs are the best to trade. There are actually three types of pairs you have to be familiar with in order to navigate this market properly: majors, crosses, and exotics.
Major currency pairs are the most traded and have the highest liquidity of transactions. They usually include the US dollar paired with currencies from other economically developed countries like the British pound (GBP) and Japanese Yen (JPY). Many favour majors because of their high liquidity, making it easier to predict their price dynamics with the use of technical analysis.
The second most traded type is the cross-currency pairs, AKA crosses. These are the pairs that do not contain the US dollar, and are therefore considered behind when it comes to trading. For this type, the best currency to pair others with is the Japanese Yen (JPY). Although, experts advise against tapping into crosses when you’re a new trader, as these pairs are exposed to various influences that might lead to an unwanted outcome.
Exotics are the third type, which are the least-traded among the three because they are considered illiquid and too volatile. However, its high volatility is also a benefit because when any of the currency’s prices are high, it enables huge potential for profit. For example, from 2008 to 2013, the exchange rate of the US dollar (USD) to the Indian Rupee (INR) surged up to 69 %, giving financial traders who were trading the pair more than 77 % profit.
Most Traded Currency Pairs
As previously mentioned, the most traded pairs right now are majors because they include the currency from the world’s biggest economy, the US dollar. It is the most demanded reference for several currency exchange transactions in the world.
Among the many major pairs traded right now, here are three most common:
The most traded pair to date is the US dollar with the Japanese Yen (USD/JPY) because the latter is the top currency in Asia. It makes up over 17 % of Forex transactions. The pair is one of the most volatile on the market, which gives traders a lot of good opportunities with its wide range of fluctuations.
Brexit added to the British pound’s recent volatility, which pricked the interest of many Forex traders across the globe. Political events hold value for the GBP/USD traders because of their effects on both economies. They often lead to “price action” impacts that in turn lead to the trade having added opportunities to make more money.
It’s now a different story when you put the Euro up against the US dollar. Since they’re two of the most used currencies in the world, FXCM states that the pair is one of the most traded as well. Another reason why many traders like EUR/USD is because they’re one of the most transparent pairs on the market, with its trends being more or less predictable. Hence, it’s also one of the most recommended pairs for new traders.
Because the world relies heavily on currency, there’s no end to the possibilities on the Forex market. If you want to try your hand in the trading business, this market is among the best places to start.
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