The Forex market is open for trading twenty four hours a day, five days per week and traders have the luxury of highly leveraged trading yet lower margin requirements than those of equity markets. However, if you’re thinking of getting started in the world of Forex trading, it’s important that you employ the services of a reliable online forex broker, in order to assist you. We’ve put together a list of the most tradeable currency pairs in the world of Forex, and how they positively and negatively correlate with each other that might also prove of assistance.
The EUR/USD currency is one of the most popular currency pairs used by Forex traders, and tends to be positively correlated with GBP/USD, and negatively correlated with the USD/CHF currency pair. The reason for this is because the Euro, British Pound and Swiss Franc have a positive correlation.
Known as ‘The Gohper’ in Forex circles, the USD/JPY currency pair is traditionally the most actively traded pair. It has been sensitive to political sentiment between the US and the Far East, and positively correlates with the USD/CHF and USD/CAD currency pairs as the US dollar is the base currency between all three.
Due to the positive correlation between the British Pound, Euro and the Swiss Franc, the GBP/USD currency pair tends to have a positive correlation with the EUR/USD but correlates negatively with the USD/CHF. This particular currency pair is sometimes referred to as ‘The Cable’.
Another popular currency pair traded often by successful Forex traders, the USD/CAD currency pair tends to have negative correlations with the AUD/USD, GBP/USD, and EUR/USD pairs due to the fact that the US dollar is the base currency within the three other pairs.
‘The Swissie’ currency pair USD/CHF tends to have a negative correlation with the EUR/USD and GBP/USD currency pairs due to US dollar, British Pound and Swiss franc having a strong positive correlation. For a long time, in times of political unrest the Swiss franc has been viewed as a safe haven by many Forex traders.
Due to the US dollar being the quote currency, the AUD/USD currency pair tends to be negatively correlated with the USD/CAD, USD/CHF and USD/JPY pairs. Since both the Canadian and Australian dollars are commodity block currencies, the two share a positive correlation with one another hence the negative correlation between AUD/USD and USD/CAD.
In basic terms, if a currency pair is moving higher, other currencies pairs will either also be moving higher or moving lower depending on their correlation with that pair. For example, if the GBP/USD currency pair is moving higher, the EUR/USD currency pair will also move higher, but the USD/CHF which it correlates negatively with will be moving lower. This should always be taken into consideration when choosing which currency pairs to trade within the Forex market.
Which currency pairs do you use when trading? If you have any advice regarding currency pairs for new Forex traders, we’d love to hear from you in the comments.