08/10/2013 by admin

Forex is the largest capital market on Earth, providing anyone who wants to trade foreign exchange rates the opportunity of trading over 80 currency pairs, all day and all night, except for Saturdays. Certain currency pairs hog the limelight. When the European trading session is open, there are huge flows of EUR/USD being processed. Similarly, when Sydney is open, the AUD/USD is the powerhouse of what is now the world’s 5th largest forex trading hub. However, it’s necessary to recognise that funding flows are not a good indicator of profit potential for an individual investor. For instance, as the US Federal Reserve proceeds with its “taper” policies, interest rates in the US will – inevitably – rise, creating a hardship situation for the AUD/USD, but probably inspiring the AUD/JPY to wing its way to greater pricing heights.

Currency pairs that do not include the US dollar are called “cross pairs” or “crosses”. On the whole, they feature the euro. Some of the more active crosses include the EUR/JPY, EUR/GBP and the EUR/CHF.

Major Currency Pairs In Foreign Exchange Rates

In forex, “the majors” are usually considered to be the EUR/USD, GBP/USD, USD/CHF and USD/JPY. However, this description doesn’t fit reality anymore. According to the latest (April 2013) Bank for International Settlements forex survey, the most heavily traded currency pairs are as follows (in descending volume order): EUR/USD, USD/AUD, USD/JPY, USD/CAD and USD/CHF. It should be noted that volatility patterns within this cohort are not the same. For instance, trading of the USD/AUD and USD/JPY in 2013 has been much more volatile than trading in the EUR/USD, USD/CHF or USD/CAD. For the most part, this has been due to Reserve Bank, Bank of Japan and US Federal Reserve changing monetary policies that are propelling the US dollar upward, against all “majors”.

Cross Currency Pairs In Foreign Exchange Rates

The crosses are usually considered to be any currency pair that doesn’t have the USD as part of a currency pair. Thus, currency pairs such as the EUR/JPY, EUR/GBP and EUR/CHF are considered to be cross pairs. In 2013, the most widely traded crosses are the EUR/JPY and EUR/GBP. Theoretically, most crosses are the result of a USD-related currency “hedge”. Take the EUR/CHF, for instance. It’s actually nothing but a long EUR/USD position married to a short USD/CHF position. The same thing is true for the EUR/AUD, which is actually a collapsed long EUR/USD and a short AUD/USD position. If you’re going to trade the later, please do it carefully. It’s expensive to short the AUD for long periods of time.

Other Foreign Exchange Rates Pairs You Can Trade

Lastly, there’s a group of currency pairs that are called “exotics”. Their main claim to fame is their typical wide spreads and lack of fully developed trading markets (the Chinese yuan, aka “CNY”, being a star example). However, that shouldn’t stop you from investigating this group of currencies. For example, the USD/MXN is turning the interest rate corner right now. Some analysts are calling late 2013 an inflection point that’s about to produce a significant breakout of the USD/MXN’s 2012-2013 weekly chart “flag”. Similarly, there’s every indication that the Bank of Japan’s policies continue to weaken the Japanese yen, much to the AUD/JPY’s upside advantage (creating a positive interest rate “carry trade” situation that most Japanese retail investors relish in).