Traders have the luxury of highly leveraged trading with lower margin requirements than in equity markets. But before you jump in headfirst to the fast-paced world of forex, you'll need to know the currency pairs that trade most often.
Here's a look at six of the most tradable currency pairs in forex.
1. EUR/USD
The EUR/USD currency pair tends to have a negative correlation with USD/CHF and a positive correlation with the GBP/USD. This is due to the positive correlation of the euro, the British pound, and the Swiss franc.
2. USD/JPY: Trading the “Gopher”
The next most actively traded pair has traditionally been the USD/JPY. This pair has been sensitive to political sentiment between the United States and the Far East. The pair tends to be positively correlated to the USD/CHF and USD/CAD currency pairs due to the U.S. dollar being the base currency in all three pairs.
3. GBP/USD: Trading the “Cable”
The GBP/USD pair tends to have a negative correlation with the USD/CHF and a positive correlation to the EUR/USD. This is due to the positive correlation between the British pound, the Swiss franc, and the euro.
4. AUD/USD: Trading the “Aussie”
The AUD/USD currency pair tends to have a negative correlation with the USD/CAD, USD/CHF, and USD/JPY pairs due to the U.S. dollar being the quote currency in these cases. The correlation with the USD/CAD is also because both the Canadian and Australian dollars share a positive correlation with each other as both are commodity block currencies.
5. USD/CAD: Trading the “Loonie”
The USD/CAD currency pair tends to be negatively correlated with the AUD/USD, GBP/USD, and EUR/USD pairs due to the U.S. dollar being the quote currency in these other pairs.
6. USD/CNY: Trading the Yuan
The USD/CNY currency pair represents the relationship between the US dollar and the Chinese renminbi, more commonly known as the yuan. In recent years, it has represented about 4% of daily forex trades.1
The US-China trade relationship has been a volatile one in recent years, providing USD/CNY traders with plenty of speculative opportunities.
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