The Most Popular Pairs of FX Currencies Currently Traded on the Forex Market
Overview
Trading on the Forex market is always carried out with pairs of FX currencies, one currency being bought as the other is simultaneously sold. This market operates on the world market, 24 hours a day, taking advantage of the movement, in value, of different currencies around the world, with traders always hoping for a slight lag as each currency crosses borders to be re-valued against the common currency traded in the country it has just arrived in. From the activity of these pairs of FX currencies comes the alteration in activity on the Forex market, commonly known as the exchange rate.
Pairs of FX Currencies Most Commonly Traded
The most popular pairs of FX currencies tend to be the US Dollar in conjunction with the Japanese Yen – i.e. USD/JPY; The US Dollar and the Euro – i.e. ISD/EUR; the British Pound and US Dollar – i.e. GBP/USD; and the US Dollar together with the Swiss franc – i.e. USD/CHF. Other major currencies that are often paired up, usually in conjunction with the US Dollar, include the Canadian Dollar, or CAD; and the Australian Dollar, or AUD.
When discussing the importance of pairs of FX currencies it is actually important which way round these pairs are written. This is because the first currency in each pair of FX currencies is referred to as the base currency and the second currency in the pair is known either as the counter currency or the quote currency. In essence, when referring to pairs of FX currencies, the base currency is always that which is equal to 1 of whichever monetary unit of exchange is relevant – i.e. 1 USD is equal to xxx; or 1 Euro is equal to xxx etc.
Accounting Currency
Otherwise known as domestic currency or primary currency, when you have pairs of FX currencies you have a forever varying exchange rate from which the price is extracted to represent a single unit of the base currency. A direct rate of exchange refers to currency that is quoted against the US Dollar whilst any currency not quoted against the US Dollar is known as the cross rate of exchange. Pairs of FX currencies tend to be traded in respect of 100,000 units of the base currency.
This translation, into various units of the base currency, also tends to be known as the secondary currency, counter currency or even the foreign currency. Whilst this sounds complicated, all that is meant by this is, in the case of USD being the base currency and JPY being the counter currency – i.e. USD/JPY = 1.30: this means that for every single 1 USD you will get 1.30 JPY. However, if the base currency is JPY and the counter currency is USD you will get a different exchange rate – i.e. 1 JPY = 0.0105695 USD.
In the case of a quote rising, it means the base currency is increasing in value or, put another way, the base currency is becoming stronger. Conversely, if the value is decreasing, the currency is weakening. With respect to pairs of FX currencies, the USD/JPY, together with the EUR/USD are both currently the most dynamically traded currency pairs, with GBP/USD coming in third place, and EUR/JPY trailing in at fourth place on the Forex market.
