Which currency pairs are popular among traders: a detailed analysis

In the currency market, the popularity of currency pairs among traders depends on many factors—from liquidity and spreads to the economic stability of countries. If you’re starting to trade on the Forex, you need to understand how currency pairs work, as successful trading is built on this foundation. Each pair consists of two currencies traded within a unified system: when you buy one currency, you automatically sell the other. It’s similar to converting US dollars into foreign currency before traveling abroad.

Basics of Currency Pairs: What Traders Need to Know

In each currency pair, the first currency is called the base currency, and the second is the quote currency. The price of the pair shows how many units of the quote currency are needed to buy one unit of the base currency. For example, EUR/USD with a quote of 1.1000 means you need $1.10 USD to buy one euro.

Understanding this mechanism is critical for traders who want to work effectively in the currency market. Different pairs have different characteristics—volatility levels, trading volume, and correlations with other pairs. That’s why the popularity of currency pairs among active traders varies depending on current market conditions and trading styles.

EUR/USD: Why Traders Choose the Most Liquid Pair

EUR/USD ranks first in trading volume and is the most popular among currency pairs. According to 2022 statistics, this pair accounts for 22.7% of global Forex trading volume. Its popularity is due to several reasons: high liquidity, narrow spreads, economic stability of the Eurozone and the US, and support from major financial institutions.

EUR/USD shows interesting correlation relationships with other pairs. It has a negative correlation with USD/CHF and a positive one with GBP/USD, reflecting the interconnectedness between the euro, pound, and Swiss franc. Traders are attracted to this pair’s stability and relative predictability, although decisions by the European Central Bank and the US Federal Reserve can cause significant volatility.

USD/JPY: Popularity Due to Volatility

USD/JPY ranks second in popularity among currency pairs, with a share of 13.5% of global trading volume (2022 data). This pair attracts traders, especially day traders, thanks to its high volatility and sensitivity to economic policy changes.

USD/JPY reacts actively to decisions by the Bank of Japan regarding interest rates, as changes in monetary policy immediately impact the yen’s value. Additionally, this pair shows a positive correlation with USD/CHF and USD/CAD—other pairs where the US dollar is the base currency. Geopolitical tensions between the US and East Asian countries also significantly influence this popular pair’s movements, creating both opportunities and risks for active traders.

GBP/USD: The Third Most Popular Currency Pair

GBP/USD controls about 9.5% of the currency market share, reflecting the economic strength of the UK and the US. Despite a smaller trading volume compared to EUR/USD and USD/JPY, this pair remains a popular choice for traders seeking alternative opportunities on the Forex.

GBP/USD shows a negative correlation with USD/CHF and a positive one with EUR/USD. This means the British pound, euro, and Swiss franc often move in the same direction, which is important to consider when building a diversified currency portfolio. Traders monitoring the popularity of different pairs often use GBP/USD as a complement to more liquid instruments.

Why the US Dollar Dominates the Currency Market

The US dollar is involved in nearly all major currency pairs, and this is no coincidence. It is the world’s reserve currency, which ensures its constant high popularity. The US’s economic power, political stability, and reliable financial system create conditions that make traders prefer currency pairs involving the dollar over other combinations.

Key Factors Influencing the Popularity of Currency Pairs

The popularity of currency pairs among traders is not static—it changes under the influence of various factors, including:

Economic Factors: GDP data, unemployment rates, inflation, and central bank decisions. Traders closely follow economic calendars, as currency pairs react quickly to unexpected economic data.

Interest Rates: Changes in monetary policy directly affect currency values. Pairs involving countries raising interest rates tend to strengthen.

Trading Volatility: Some traders prefer high-volatility pairs for day trading and scalping, while long-term investors favor more stable pairs.

Geopolitical Risks: Wars, trade conflicts, sanctions, and political instability create uncertainty that impacts currency pair popularity.

Liquidity and Spreads: Traders prefer pairs with high liquidity, as this ensures better order execution and narrower spreads.

How to Choose Currency Pairs for Your Trading Style

Selecting popular currency pairs should depend on your trading style. Day traders, who prefer quick entries and exits, often choose volatile pairs like GBP/USD and USD/JPY. Swing traders typically monitor medium-term trends in EUR/USD and other liquid pairs. Long-term investors focus on fundamental economic indicators and select the most stable currency pairs.

It’s important to stay updated on current events and economic data. The popularity of currency pairs can shift depending on which countries show stronger economic growth or more attractive interest rates. Traders who regularly analyze the currency market and follow central bank decisions gain an advantage when choosing the most promising pairs for trading.

Remember, all investment decisions should be based on your experience, financial situation, and goals. Do not invest sums you cannot afford to lose. The popularity of currency pairs does not guarantee profit—success depends on your analysis, risk management, and discipline in trading.