What Are Currency Pairs?

The foreign exchange, or forex, is the global marketplace where the world's currencies are exchanged. U.S. dollars or British pounds are exchanged for euros, Canadian dollars, or Japanese yen. When currency speculators exchange money, their intention is to reverse the trade and pocket a profit on the change in value between the two currencies.

Of course, if they're wrong, they wind up with fewer U.S. dollars or British pounds.

This is why trading on 💟the forex is always done in currency pairs. Each currency has a constantly changing value in comparison with every 🌱other currency.

The process is essentially the same as the one travelers experience when they exchange their home currency for cash to use in another country. The differences are in the sheer ♔size and s♔peed of the transactions.

Trading on the Forex

Currencies always trade in pairs because you can only buy one currency with another currency. For every currency pair, there is a base currency and a 澳洲幸运5官方开奖结果体彩网:quote currency. In a quote, the base currency is the fi🎉rst currency shown on the left. The quote currency is the second currency shown on the 🀅right.

The price for a currency pair is the amount of the quoted currency required to purchase one un💜it of the base currency.

For example, if the currency pair is EUR/USD, the euro is the base currency and the U.S. dollar is the quote currency. A currency pair price of 1.1000 means that 1.10 U.S. dollars are need🔯ed to buy one euro, or one euro i🦄s worth 1.10 U.S. dollars.

Forex trading moves at high spe🌳eds and involves enormous volume. Big profits (or losses) may be made on a fractional move in the relative value of 🐓two currencies.

In comparison with the stock markets, forex traders are permitted more highly 澳洲幸运5官方开奖结果体彩网:leveraged trading with lower margin requirements. But꧟ the forex is dominated by trade in only a few currency pairs.

Here's a look at six of the most traded currency pairs in forex, with rankings based on the 2022 triennial survey by the 澳洲幸运5官方开奖结果体彩网:Bank for Int🍃ernational Settlements (BIS).

1. EUR/USD: Trading 'The Fiber'

The most traded currency pair is the EUR/USD, owing to the global prominence of the economies of the 澳洲幸运5官方开奖结果体彩网:European single market and the United States. It made up 22.7% of overall market share, as of the 2022 BIS survey. That's down from 24% market share in the previous 2019 survey. The high daily volume and liquidity of this pair ensure tight spreads for traders.

The EUR/USD tends to have a negative 澳洲幸运5官方开奖结果体彩网:correlation with the U.S. dollar and Swiss franc (USD/CHF) and a positive correlation with the British pound/U.S. dollar (GBP/USD). This is due to the positive correlation of the euro, the 澳洲幸运5官方开奖结果体彩网:British pound, and the 澳洲幸运5官方开奖结果体彩网:Swiss franc.

In 2022, the war in Ukraine, along with the resulting energy crisis and political instability, weighed on the price of the euro. This briefly sent the EUR/USD below 1.00. For the first time in history, the U.S. dollar was more expensive than the euro.

2. USD/JPY: Trading 'The Gopher'

The second most actively traded pair was the USD/JPY, with a market share of 13.5% as of 2022, slightly higher than its prior 13.2%. This pair has historically been 澳洲幸运5官方开奖结果体彩网:sensitive to political sentiment between the United States and the Far East.

It tends to be positively correlated to the USD/CHF and USD/CAD currency pairs. This relationship is due to the U.S. dollar being the 澳洲幸运5官方开奖结果体彩网:base currency in all three pairs. USD/JPY also responds to changes made to interest rates by the Bank of Japan, and the effect on the yen relative ♍to the U.S. dollar.

3. GBP/USD: Trading 'The Cable'

Trading in the GBP/USD currency pair represented 9.5% of the forex market share in 2022, a small decrease from 9.6% in 2019. Again, the popularitജy and volume of trading in thi﷽s pair reflect the strength of the British and U.S. economies.

The GBP/USD tends to have a negative correlation with the USD/CHF and a positive correlation with the EUR/USD. Th♍is is due to the positive correlation between the British po🌊und sterling, the Swiss franc, and the euro.

Much like the euro, the economic consequences of the war in Ukraine also took a toll on the GBP. In September 2022, the GBP/USD briefly dipped below 1.085, the pair’s lowest level in decades.

4. USD/CNY: Trading the Yuan

The USD/CNY currency pair represents the relationship between the U.S. dollar and the Chinese renminbi, more commonly known as the yuan. Its market share in 2022 stood at 6.6%, a roughly 50% increase from 4.1% in 2019).

The 澳洲幸运5官方开奖结果体彩网:U.S.-China trade relationship has been a volatile one, providing USD/CNY traders with plenty of speculative trading opportunities. Those interested in the USD/CNY should maintain awareness of developments in that relationship, as they could affect the pric𝔍ing of the pair.

5. USD/CAD: Trading 'The Loonie'

Market share for the USD/CAD currency pair increased to 5.5% in 2022 from 4.4% in the previous survey of 2019. Interest rates in the U.S. and Canada will affect the price of this pair, reflecti🌳ng the eff♍ects on the individual currencies. In addition, as oil is a major economic driver for Canada, oil prices will affect the price of Canadian currency. This in turn can have an impact on the currency pair.

The USD/CAD tends to be negatively correlated with the AUD/USD, GBP/USD, and EUR/USD pairs due to the U.S. dollar being the 澳洲幸运5官方开奖结果体彩网:quote currency in these other pairs.

6. AUD/USD: Trading 'The Aussie'

The AUD/USD currency pair captured 5.1% of the forex market share in 2022, compared to its previous 5.4%. It tends to have a negative corr🦄elation with the USD/CAD, USD/CHF, and USD/JPY pairs due to the U.S. dollar being the base currency i⛄n these cases.

The value of Australia's currency is closely tied to the role and value of its exports to its economy. A downward movement in that value could affect the AUD/USD currency pair value, strengthening the dollar to the loonie. The relationship between the interest rates set by the respective central banks can affect the currency pair price as well.

The Bottom Line

Our list of the most actively traded currency pai🌜rs starts with the EUR/USD, which has the greatest trading volume. All six currency pairs offer the liquidity that invest☂ors who trade them need for profits.

However, various factors, such as trade relationships, changing interest rates, economic upheaval, and country disputes, including war, can af🌠fect individual currencies (and thus pairs). Make sure you're up to date on the news before leaping into the forex market.