Monday, 5 March 2012

What All Forex Traders Need to Know About the Major Currency Pairs

In Forex trading, a group of currency pairs known as "the major currency pairs" constitute over 85% of daily foreign exchange volume. Because there is so much volume for these currency pairs, they are generally regarded as safer to trade; their massive volume ensures that it is relatively easy to find a buyer or seller to take the other side of your trade.
The major currency pairs are outlined below. It is worth noting that the US dollar is a part of all major currency pairs, a fact resulting largely from the US dollar's role as the world's reserve currency. Should the US dollar lose its status as the world's reserve currency, the major currency pairs may lose their significance for traders - or, alternatively, a new group of currency pairs may earn the title of "major currency pairs."
Euro/US dollar. The Euro/US dollar (EURUSD) currency pair is the most active currency pair traded in the Forex market. The fact that the Euro is used by many European countries, coupled with the US dollar's role as the world's reserve currency, create this scenario. Since the Euro's inception in 1999, the currency has risen sharply against the US dollar.
British pound/US dollar. The British pound/US dollar (GBPUSD) is another actively traded pair, a result of the pound's high interest rate (which incentivizes buying of the currency). The stability of both currencies also makes it appealing to traders seeking less volatile assets to invest in.
US dollar/Swiss franc. The US dollar/Swiss franc (USDCHF) is a major currency pair that tends to enjoy greater trading activity during times of greater geopolitical risk. This stems from the fact that the Swiss franc has historically been regarded as a safe haven currency, due to the fact that it previously had a legal requirement that a minimum of 40% of its value be backed by gold reserves. Though this legal requirement was terminated on May 1, 2000, market activity still tends to regarding the Swiss franc as a safe haven currency, as buyers still flock to it during times of increased geopolitical risk.
US dollar/Japanese yen. The US dollar/Japanese yen (USDJPY) is the only major currency pair that involves an Asian currency. Japan has historically had an export-driven economy, and thus the Bank of Japan - the central bank that regulates the value of the yen - has intervened to ensure that the yen remains weak, and thus conducive to sustaining an economy of exports.
As the major currency pairs constitute the vast majority of Forex trading, they are important for all traders to be aware of.
Simon Parth has been an active Forex trader since 2002. He is the co-founder of, a community dedicated to creating a comprehensive free online school for traders.

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