The forex market is one of the largest trading markets in the world. The daily trading volume in the aggregate of all foreign exchange markets around the world can sometimes even surpass $8 billion.
With the exception of a handful of commodities such as gold and silver which are also traded in FX markets, almost all the trades are carried out based on a trading pair made up of two foreign currencies.
However, much like the statistical principle known as the Pareto distribution, which basically posits that in any system 80% of the output is done by 20% of the input elements, in FX markets only a handful of trading pairs are responsible for most of the trading. For example, over half of all trades have the US dollar as one leg of the trading pair.
In this article we want to take a look at the most traded forex pairs.
Euro and US Dollar Pair (EUR/USD)
As of 2023, the Euro and US dollar trading pair is responsible for around 28% of all trades. Of course it is perfectly understandable why this pair would be traded most among all pairs.
This trading pair involves the biggest economies in the world; one representing the US and the other representing the European Union might.
One great advantage of this astounding trading volume is the resultant high liquidity in the market. A high liquidity such as this creates a fertile ground for traders to benefit from the small and large trades all the same.
Similar to other assets, these two fiat currencies are also affected by a series of factors that can impact their price. Most notably, they are impacted by the interest rates that are set by their respective central banks. For instance, the governmental body representing central bank in the US is the Federal Reserve. In fact, they have been raising interest rates as of 2022 and they plan to do so well into 2023.
UDollarS and Japanese Yen (USD/JPY)
Standing on the second place this oriental fiat currency coupled with its American counterpart make up about 14% of all forex trades.
Along the same lines as the previous trading pair, the USD/JPY also has a very high liquidity which is of course the result of its high trading volume.
Now, the reason for this very high trading volume has to do with the currencies involved themselves. Obviously, the almighty dollar is the most traded currency in the world. On the other hand, Japanese Yen is the most traded currency in the continent of Asia.
So, coupled together, they make a very attractive trading pair for forex traders.
The Pound Sterling and US Dollar (GBP/USD)
Now we couldn’t get far into the list without mentioning the royal Pound of Britain. That’s right, the British Pound and the US Dollar pair stand on the third place on our list with around 11 to 12 percent of the trading volume dedicated to them.
Again, because we are talking about the foreign exchange market and we are dealing with foreign currencies, the strength of the pairs would be tied to the strength of their country of origin, or rather their economy.
So it is no wonder why GBP/USD pair makes up around one tenth of all forex trades, given the fact that both US and the UK are regarded to be super powers in the global economy.
Australian Dollar and the US Dollar (AUD/USD)
Fourth on our list is the pair AUD/USD which is made up of the Australian dollar and the US dollar. The trading volume of this pair in the forex markets is around 6 to 7 percent.
You might be rather surprised to see the Australian dollar so high up on the list, especially in light of the fact that we haven’t touched upon some other prominent currencies, including certain European currencies.
The reason Australian dollar is high up on this list of forex trading volume based on trading pairs, can be found within the economy of the land down under. Or more specifically, within its exports.
You see, Australian is one of the biggest players in the global economy when it comes to the export of metals and precious metals, including gold. Also, Australia is home to some of the biggest gold mines in the world. So, it can impact the precious metals and metals markets around the world, which would ultimately trickle down and impact all markets.
This means that should the value of these commodities, such as gold and steel, would drop, so would also the value of the Australian dollar. However, much like other currencies, the value of AUD is also tied to the interest rates set by the central bank of this country.
US Dollar and Canadian Dollar (USD/CAD)
Fifth on the list is the pair of US dollar and Canadian dollar, or more commonly known as the USD/CAD. This pair is responsible for 5 to 6 percent of the FX markets’ trading volume.
The Canadian dollar, which is also referred to as a loonie, is also closely tied to the main export of the Canada, just like Australian dollar is to its country’s export.
In the case of Canada, their main export is oil, given their vast oil resources across their similarly vast nation. This means that if oil prices increase or even keep steady, the Canadian dollar will also remain strong and reliable.
Interesting fact is that oil is valued and sold against the US dollar. So by exporting oil, Canada earns hefty amounts of US dollar in return on a regular basis. This also means that good oil prices would strengthen the US dollar, which is doubly good for Canada, since they are already getting US dollar for their oil.
This just goes to show you how various the factors impacting currencies can be. And similarly, just how many factors you need to track and observe for successful forex trading.
US Dollar and Swiss Franc (USD/CHF)
Standing strong on the sixth place is the pair made up of US dollar and the franc of Switzerland. The interesting point about USD/CHF pair is that they were much lower on the list in previous years. Ordinarily, the sixth place on the list of most traded forex pairs would go to US dollar and the Chinese Yuan.
But of course Swiss franc has been able to surpass the Chinese currency. In any case, USD/CHF have a trading volume of around 4 to 5 percent.
So, how has Swiss franc been able to climb up on the list? The Swiss franc and the whole Swiss economy is renowned world over as being the symbol of stability and reliability.
Similarly, when the markets around the world go a bit haywire, investors, especially big pocket investors, tend to turn to the Swiss franc for comfort. And frankly, who can blame them!
The recent spike in the trading volumes of USD/CHF might be related to the economic uncertainty of 2023.
New Zealand Dollar and US Dollar (NZD/USD)
Going back to the southern hemisphere, we have the New Zealand dollar against the US dollar for the seventh place on our list with around 4% of all forex trading volume.
So what impacts the New Zealand dollar? You guessed it, the country’s economy. The major export of New Zealand has to do with its agriculture and dairy industry.
In fact, around 70 percent of all its exports come from these two domains. Therefore, the price of grains, crops, dairy products, etc., will ultimately have an impact on the value of the New Zealand dollar and how many NZD you can buy with a certain number of USD.
Euro and the Japanese Yen (EUR/JPY)
With close to 4%, although slightly less than NZD/USD, the trading pair EUR/JPY stands on the eighth spot.
The last spot on the list that we have prepared for you in this article belongs to EUR/JPY which is Euro against the Japanese Yen. Similar to the two trading pairs that stand above it, EUR/JPY has also gained this top spot recently.
The reason for the popularity of this trading pair can be found again merely in the power and strength of the European and the Japanese economy.
This was the top eight most traded currency pairs in forex markets around the world as of 2023.
Moving forward into the year, various economic factors can impact the standings. We just have to wait and see how certain economies land. Especially the US economy and whether it would have a soft landing after the mild recession as feds have been predicting.
Other honorable mentions in the list of most traded currency pairs are GBP/JPY, EUR/GBP, AUD/GBP, EUR/AUD, and EUR/CHF.
Paying attention to the share of the trades volume is very important, as it translates into tighter spreads, higher liquidity, and higher volatility, among other factors that could benefit forex traders.