What Currencies Are Traded in the Forex Market?

The foreign exchange market is the largest global decentralized market where various currency pairs are bought, sold, and exchanged at determined or current prices. Thus, traders need to possess a thorough understanding of the currency pairs that are traded in the Forex market. To simplify, here is an overview of the currency pairs, their types and what are the most traded among them.

What are Currency Pairs?

The currency pairs are a critical aspect of exchange rate determination in the forex market. It represents the relative value of one currency against another, reflecting the worth of one currency in terms of the other currency in the pair. In the pair, the first currency, i.e. on the left is called “Base Currency” while the other currency is called the “quote currency”.

For Instance, in the EUR/USD pair, EUR, i.e., the Euro is the base currency while USD, i.e., the US Dollar is the quote currency, showing how much amount of USD is required to buy one unit of EUR. In most cases, the base currency is represented as 1 unit while the quote currency represents the forex exchange rate. For example, if USD/JPY is 1.5097, it means that 1 US Dollar is equivalent to 1.5097 Japanese Yen. Thus, if a trader wants to buy a US dollar, they will require 1.5097 JPY, and conversely, if they want to sell 1 Euro, they will rather receive 1.5097 JPY.

In the forex world, traders buy a currency pair, if they believe the price of the base currency will increase relative to the quoted currency. This buying of currency pairs is called “Going Long” while selling of the currency pair is called "Going Short.” Additionally, the forex currency pairs are traded in lots, i.e., Micro, Mini, and Standard lots.

- Micro Lot: Its worth is 1000 times the given currency.

- Mini Lot: Its worth is 10,000 times the given currency.

- Standard Lot: Its worth is 100,000 times the given currency.

Types of Currency Pairs

Based on liquidity and trading volumes, there are three types of currency pairs, explained below-

Major Currency Pairs

Major pairs or the most traded currency pairs include the most influential currencies of the world. Considered the best forex pairs, these are traded heavily in the forex market and contribute to more than 75% of the forex trades. Having the largest buyers and sellers volume, these pairs mostly have a higher bid and ask spreads, i.e., the difference between the buy and sell price.

It includes five currencies, i.e., USD (the U.S. Dollar), EUR (Euro), JPY (Japanese Yen), GBP (The Great British Pound), and CHF (Swiss Franc). Some of the major currency pairs in the forex market are-

- EUR/USD

- USD/JPY

- GBP/USD

- USD/CHF

- AUD/USD

- USD/CAD

- NZD/USD

Minor Currency Pairs

The minor currency pairs refer to the currency pairs that do not include the US Dollar, i.e., USD. These are less commonly traded currency pairs as compared to major pairs, thus, carrying a higher risk and drawing wider forex spreads from brokers. Along with this, trading minor currency pairs can also present challenges to traders as it has lower liquidity.

Some of the minor pairs are:

- EUR/GBP

- GBP/JPY

- EUR/AUD

- CHF/JPY

Exotic Currency Pairs

The exotic currency pair combines a major currency with a currency of the growing economy. These currency pairs are less prevalent and riskier than the other two types of currency pairs, generate a wider spread, and provide profit only under specific circumstances.

Some of the exotic currency pairs are:

- EUR/TRY

- JPY/NOK

- GBP/ZAR

- NZD/SGD

Most Traded Currency Pairs in Forex Market

Forex trading offers traders the luxury of trading currency pairs 24*7 with high leverage and lower margin compared to equity markets. Among a plethora of currency pair options, the most traded currency pairs are-

- Fiber, i.e., EUR/USD- EUR/USD is the most traded currency pair and makes up more than 22% of the overall forex market share. This currency pair tends to have a negative correlation with USD/CHF and a positive one with GBP/USD.

- Gopher, i.e., USD/JPY- USD/JPY is the second most traded currency pair that has high liquidity and makes up more than 13.5% of the forex market share. This currency pair is highly sensitive to geopolitical sentiments between the Far East and the US. Gopher has a positive correlation with USD/CAD and USD/CHF

- Cable, i.e., GBP/USD- GBP/USD represents 9.5% of the overall forex market. This currency pair tends to have a positive correlation with EUR/USD while a negative one with the USD/CHF.

- Yuan, i.e., USD/CNY- It provides traders with a lot of speculative opportunities because of the volatile trade relationship between the US and China. It makes up 6.6% of the overall forex trading market.

Conclusion:

To conclude, currency pairs are continuously traded in the forex market. Among all the currency pairs, EUR/USD leads the way for daily traded volume. However, traders must consider carrying out their own technical and fundamental analysis to check whether the currency pair they are choosing is a viable trading option or not.