Major Currencies Traded in the Forex Market
Major Currency Pairs Traded in The Forex Market and Minor/Cross Currencies
Forex Trades turnover is approximately 4.2 trillion dollars per day, 95 % of all Forex trades are carried out by speculators for profit. The Majority of these Forex trades is comprised of the five major currencies that are comprised of
The USD is the most traded pair
USD - 85% of all Forex trades
EUR - 40% of all
JPY - 20% of all
GBP -13 % of all
CHF - 9 % of all
US Dollar or USD - the United States dollar is the main currency of the world. It is used as the standard measure of all other currencies that are traded in the foreign exchange market. All other currencies are generally quoted in terms of US dollar.
The US dollar is a safe haven currency, because it is held as a reserve by many central banks. In times of economic recession the dollar will strengthen due to the fact that investors buy the dollar as a safe haven currency. On the other hand when the economies are doing well people will go for those that are higher yielding such as the EURO, Pound, Swiss Franc and Australian Dollar.
In the foreign exchange market the dollar is traded against other major currencies, these are Euro, Japanese Yen, British Pound and Swiss Franc.
Euro or EUR - Euro has a strong international presence because it represents 17 Euro-zone member countries of the European Monetary Union. Because the Euro represents 17 economies, this makes the Euro the second most traded after the US dollar.
Japanese Yen or JPY - Japanese Yen is the third most traded in the world because of its liquidity. Japanese economy is the second biggest economy after the US economy.
British Pound or GBP - Britain economy is the third largest economy after the US and the Japanese Economy. This makes the British pound liquid and it is the fourth most traded in the Forex market.
Swiss Franc or CHF - Swiss Franc is the only major currency of a major European country that does not belong to the European Monetary Union or G-7 countries. Although the Swiss economy is relatively small, the Swiss Franc is one of the five major currencies traded in the Forex market. This is because of the strength of the Swiss banking system and the Swiss economy which makes the Swiss Franc stable with a high demand that exceeds supply.
The Canadian Dollar or CAD and the Australian Dollar or AUD are also part of the currencies traded on the Forex market but these do not count as being part of the majors because of their illiquidity.
After classifying the above currencies, we then classify them into 2 categories:
- Major currency pairs
- Currency crosses
Major Currency Pairs
Currencies are traded in pairs of two e.g. EURUSD
Major pairs have a combination of the USD and one other major currency(EUR, JPY, GBP, CHF).
The major pairs or the big four in Forex are:
These are the most traded currency pairs because they have a high turnover and are the most profitable pairs.
If you want to make the most profit it is best to trade these four only.
The USD is the most traded pair:
USD - 85%
EUR - 40%
JPY - 20%
GBP -13 %
CHF - 9 %
Since currencies are traded in pairs the total will be 200 %
E.g. EURUSD =100% EUR +100% USD
Summing up the total of the big four currency pairs= 85 + 40 + 20 + 13 + 9 = 167 % . Note the four pairs are made up of five individual currencies which make up the sum total of 167%. This percentage of the total trade volume is what makes these four pairs to be refered to as major pairs.
Therefore volume of trades for Majors is:
Major pairs = 167 % of all Forex trades
Others = 33 % of all FX trades
Because The Major pairs are highly traded many experienced Forex traders only trade the major currency pairs because these are highly liquid their movement tends to be more predictable, this makes these currencies the best to trade using Forex technical analysis.
For Example by just trading EURUSD then a trader will be participating on 85 + 40 = 125% of all forex trades volume, which is two-thirds of all Forex trades. This is another reason why some traders just trade the EURUSD pair alone.
These are the pairs that do not have USD and involve cross-currency transactions.
To buy EURJPY you first buy EURUSD and then buy USDJPY.
This means to trade EURJPY you will have traded two other major pairs. This is why major currency pairs have large trade volumes because all trades will involve these major pairs.
This is because in the foreign exchange market you cannot trade EUR directly for the JPY you have to convert EUR into USD then using the USD you have to trade JPY. This is why these currencies are called cross currencies because of the cross currency transactions using trading USD. This is also why USD takes up 85% of all Forex trades, because it is the base of all exchange trades transactions.
To buy GBPJPY you first buy GBPUSD and then buy USDJPY
This is also why the spread of the currency crosses is higher than that of the major pairs, because you will be transacting two trades simultaneously when buying or selling this currency crosses.
Crosses are also not very liquid and therefore are not highly traded by many traders, this is why these currencies tend to have less predictable movements because their volumes of trade is not very high.