What are the Most Liquid Currency Pairs?

The task of every trader is to choose the most liquid asset from the many in terms of risk and return. It takes into account the price of the asset at the moment and in the future, as well as its supply in the market.

A novice trader, whether he/she decides to trade via a broker or not, may be puzzled by the number of currency pairs available on the trading terminal. Therefore, it is better to immediately find out which currency pair is the best for making a deal.

What is a currency pair and its liquidity?

A currency pair is represented by two monetary units. Usually, currency symbols consist of 3 letters. The first two letters identify the country, and the last letter stands for the currency, for example, UDS, GBP, JPY.

Two codes make up a currency pair. The first currency in a pair is called the base currency, and the second is the quote currency. For example, the EUR/USD pair will measure the value of the euro in dollars.

Currency liquidity is the amount of supply and demand for this trading instrument, its popularity among sellers and buyers, and how quickly you can exchange this currency for another.

Main world currencies

There are many official currencies used around the world, but there are only a few major currency pairs that are actively traded on Forex. In most cases, only the most economically and politically stable and liquid currencies are in the greatest demand. For example, the US economic strength made the US dollar the most liquid currency in the world.

In total, there are seven most popular currencies:

UDS - the US dollar. According to Investopedia, the US dollar is the best-selling currency on the planet. It is an unofficial global reserve currency held by almost every central bank and institutional investment company in the world.

EUR – euro. Although it appeared relatively recently (in 1999), it is now the second-largest reserve currency in the world, which is also the official currency of most Eurozone countries. The popularity of the euro sharply increases during unstable political situations in EU member states.

JPY - Japanese Yen. It is Asia's best-selling currency, and many experts see it as an indirect indicator of Japan's economic level. The yen is often used to assess the overall condition of the Pacific and Southeast Asia, as the national currencies of South Korea, Singapore, and Thailand are not so popular in world currency markets.

GBP - British pound. It ranks fourth among the most traded currencies in the forex market. The pound is also a reserve currency because of its high value compared to other world currencies.

CAD - Canadian dollar. It is considered the world's major commodity currency. It depends on commodity markets, especially oil, precious metals and minerals markets. As Canada is a major exporter of these above goods, the value of its national currency is sensitive to changes in the prices of underlying assets, especially oil.

CHF - Swiss franc. The Swiss franc is considered a neutral currency. The stability of the franc is supported by the Swiss National Bank, which actively trades in the forex market, controlling interest rates and reducing volatility.

AUD - Australian Dollar. It is a reserve and one of the most traded currencies in the world. Its popularity is reasoned by the overall stability of the Australian economy and political system.

Main currency pairs

There are 28 different pairs that include these seven currencies. However, only certain pairs are most commonly used by forex market traders because of their overall liquidity. These main pairs are:

EUR / USD

GBP / USD

USD / CHF

USD / JPY

USD / CAD

AUD / USD

NZD / USD

All these currency pairs are highly liquid instruments, which are characterized by volatility. It determines their attractiveness to investors and high profitability potential.

EUR/USD pair significantly stands out of the four major currency pairs in terms of popularity (volume of trading). According to statistics, this currency pair represents the highest proportion of trades concluded on the financial marketplace. Moreover, a prevailing number of individual Forex traders trade only this pair.

Beginning Forex traders often are misled by a commonly used approach to focus on a currency pair that shows a sharp and strong growth at a certain moment. Some traders start working exclusively with one currency pair. But experts do not agree with this tactic.

There are pairs in the Forex market that can be traded effectively at any time, and even exotic currency pairs can bring a good and stable income. Each currency pair fluctuates under the influence of various factors. Traders must learn to understand and forecast these situations and trade, paying close attention to them.