In the forex market, prices of currency units are quoted as currency pairs. The value, price or exchange rate of one currency is always determined in relation to another currency.
In a currency pair, the first one that appears is called the base currency while the second one is called the quote currency. The exchange rate shows the amount of quote currency needed to purchase one unit of the base currency.
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The most traded currency pairs
According to the Bank of International Settlement Survey, the most traded currency pairs in the world are:
EUR/USD
The most traded currency pair in the foreign exchange market is EUR/USD, which accounted for nearly a quarter of all daily forex trades in 2023.
The high daily trading volume gives this pair high liquidity, resulting in tight spreads, ideal for high-impact trades.
The exchange rate between the two currencies is determined by the interest rates set by each market’s economy – in this case, the European Central Bank and the US Federal Reserve. The currency with the higher interest rate will offer a greater return on the initial investment.
Therefore, if the ECB sets higher interest rates than the Federal Reserve, the euro will likely appreciate against the dollar.
USD/JPY
The USD/JPY pair, or “the gopher,” is the second most traded currency pair on the foreign exchange market.
The yen is the most traded Asian currency, while the US dollar is the most traded globally. Again, the high frequency of transactions makes this pair known for its liquidity.
The interest rate for the Japanese economy is set by the Bank of Japan, which in turn affects the relative value of the yen against the US dollar.
GBP/USD
The GBP/USD currency pair, or “the cable” in reference to the undersea cables that connect transatlantic markets, is the third most traded currency pair on the market.
If the British economy grows, it is very likely that the pound will strengthen against the dollar. Otherwise, the opposite would occur. Again, the differential in each economy’s respective interest rates will impact the stock price and relative strength of each currency.
AUD/USD
The AUD/USD currency pair is the fourth most traded globally. The Reserve Bank of Australia is responsible for the currency’s interest rate. If US interest rates fell, the US dollar would weaken against the Australian, meaning it would cost more to buy in USD.
The Australian currency is strongly linked to various exports and their value, which represents a significant portion of the country’s gross domestic product. If exported commodities decline in value, the AUD is likely to follow suit.
USD/CAD
Often called the “loonie,” in reference to the Canadian bird and its famous currency, the USD/CAD currency pair is the fifth most traded.
The strength of the Canadian currency is closely tied to the price of its main export: oil. As the price of oil rises, the value of the Canadian dollar relative to the US dollar also rises, especially since the US dollar is used for oil prices around the world.
When oil prices rise, the US dollar loses strength, as more oil is needed to purchase the same amount of oil, making this commodity an important one to keep an eye on when considering forex market trades.
Other major currency pairs
The sixth to tenth most traded currencies are:
- USD/CNY (Chinese renminbi)
- USD/CHF (Swiss franc)
- USD/HKD (USD Hong Kong)
- EUR/GBP
- USD/KRW (South Korean won)
The USD/CNY pair, or “the yuan,” is the sixth most traded currency pair. Due to the US-China trade war and China’s increasing market share globally, traders should pay attention to how developments continue to impact the market.
The USD/CHF pair trades at the seventh highest rate and is most active in a volatile market, as investors turn to the favorable conditions of the Swiss financial system as a safe haven during periods of volatility.
The US dollar against the Hong Kong dollar is the eighth most traded currency pair and operates with a linked exchange rate that offers a fluctuation band for HKD at 1 USD.
In ninth place among the most traded currency pairs, and notoriously unpredictable, is EUR/GBP.
Finally, the tenth most traded currency pair in the world is the US dollar against the won of South Korea, Asia’s fourth-growing economy.
Different types of currency pairs
Always carried out in pairs, each operation involves the purchase of a base currency and the sale of a quote currency to purchase it.
Pairs are listed in “base, share” order. For example, in the EUR/USD pair, if the quote price (USD) was 1.1, this would indicate that a single euro is valued at $1.10. In other words, you spend x amount of the quote currency for a single unit of the base currency.
In general, there are three types of forex pairs:
- Main: the most traded currencies (e.g. EUR/USD, USD/JPY)
- Base currencies: Values are tied to a commodity (e.g. AUD/USD, USD/CAD)
- Cross currencies: not tied to the USD (e.g. EUR/JPY, EUR/GBP)
Read also: The 8 most traded commodities worldwide
