According to the Bank of International Settlements (BIS), the global foreign exchange market trades nearly $6.6 trillion daily. Traders trade currency pairs that grease the wheels of commerce around the world. Success in this massive market is not just about understanding the economics of foreign currency trade, it’s also about knowing what forex pairs to trade to earn you the highest yield.
Source: Bank of International Settlements
What is a Forex Pair?
A forex pair tells you how much one currency is worth in terms of another currency. For example, as I write, the EUR/USD exchange rate is 1.0037, which means that for every €1, a trader can get $1.0037. This is just above parity. Recently, the EUR/USD hit parity for the first time since 2002.
The exchange rate changes constantly, but often, those changes are within a very tight band. Consider that, year-to-date, the Euro has slid about 11.75%. In terms of currencies, that is a huge change. Over five years, the Euro has fallen 14.1%, so most of that fall has been in 2021 alone. In other words, typically, the exchange rate doesn’t make big moves.
Source: Google Finance
Size of Forex Portfolio
The best forex traders in the world tend to have very focused portfolios. Many use Kelly-bet sizing to tell them how much of their funds to bet on a particular forex pair. The size of the portfolio itself, or the number of forex pairs, will vary from trader to trader, but what Kelly position sizing does is that, when you have a very good chance of earning a high yield, it concentrates your bet into a few forex pairs. So, a forex trader may have dozens of forex pairs in their portfolio, but much of that portfolio could easily be concentrated in a few forex pairs. Forex traders work on studying the most traded forex pairs and looking for the forex pairs where they think they have an edge.
Most Traded Forex Pairs
As a forex trader, you want to trade a forex pair that is highly traded, in other words, so that it’s easy for you to find a counterparty for your trades. Trading liquid currency pairs are extremely important for making money as a foreign currency trader. It’s insightful, then, to look at the most traded forex pairs in the world. The best forex traders are those that trade these highly liquid forex pairs.
The major currency pairs in the world are listed below. Most of the most traded forex pairs in the world are traded with the United States dollar as one of the currencies. This reflects the United States’ critical role in the global economy. The BIS’ 2019 Triennial Survey accounts for 88% of forex pairs. The relative ranking of forex pairs has remained stable across several BIS surveys. The Euro is the world’s second most traded currency, reflecting the status of the Eurozone as the world’s second richest currency zone. Rounding off the top three currencies is the Japanese yen. This means that forex traders will often trade forex pairs that involve either the United States dollar, euro, Japanese yen, and the British pound, Australian dollar, Canadian dollar, and Swiss franc.
The Renminbi yuan has risen in importance over the years, but 95% of its trades are with the United States dollar. The Hong Kong dollar is growing quickly as Chinese startups lose in Hong Kong. More adventurous traders can look at trading pairs involving the Korean won, Indian rupee, and Indonesian rupiah, which are fast growing in importance.
Source: BIS’ 2019 Triennial Survey
The top 10 forex pairs can be broken up into the following categories: the majors, which are traded across the world and involve the United States dollar as one side of the pair; commodity pairs, which have a value somewhat linked to that of a commodity such as oil, coal or iron ore; and cross pairs, which are forex pairs that do not involve the United States dollar.
| Currencies in the Pair | |
| The Majors | |
| EUR/USD | Euro and US dollar |
| USD/JPY | US dollar and Japanese yen |
| GBP/USD | British pound and US dollar |
| USD/CHF | USD and Swiss franc |
| USD/HKD | United States dollar and Hong Kong dollar |
| Commodity Pairs | |
| AUD/USD | Australian dollar and US dollar |
| USD/CAD | US dollar and Canadian dollar |
| USD/CNY | US dollar and Chinese yuan |
| Cross Pairs | |
| GBP/EUR | British pound and euro |
| EUR/JPY | Euro and Japanese yen |
Source: BIS’ 2019 Triennial Survey
The EUR/USD forex pair is the most traded. As you can see, several highly traded currencies forex traders can trade on in search of high yields. before choosing the best forex pairs to trade, traders should study the fundamentals of that currency and see if they have a clear hypothesis for what will happen with the forex pair.
