Forex trading has become increasingly popular in recent years, with millions of traders around the world participating in the market every day. As the largest financial market globally, forex trading is characterized by high liquidity, which refers to the ease at which traders can buy and sell currencies without affecting their prices significantly. However, not all forex pairs have the same level of liquidity, and some are more traded than others. This article aims to examine which forex pairs have more liquidity and why.
Liquidity in the forex market is determined by several factors, including the volume of trades, the number of participants, and the depth of the market. Forex traders prefer to trade pairs that have high liquidity because they offer better execution, tighter spreads, and lower transaction costs. Additionally, high liquidity means that traders can enter and exit positions quickly without affecting the market’s price. Therefore, it is crucial to know which forex pairs have more liquidity to make informed trading decisions.
The most traded currency pair globally is EUR/USD, accounting for about 24% of the daily forex turnover. The Euro and the US Dollar are the two most widely used currencies globally, making EUR/USD an attractive option for traders. Moreover, the European and US economies are closely interlinked, making this pair highly sensitive to global economic news, making it a popular trading instrument for investors.
Following closely is USD/JPY, accounting for about 13% of the daily forex turnover. The US Dollar and the Japanese Yen are the two most liquid currencies, and this pair is often used as a proxy for global risk sentiment. Traders use this pair to gauge market movements as it is sensitive to global economic and political events, making it a popular trading instrument for investors.
GBP/USD is another popular currency pair, accounting for about 9% of the daily forex turnover. The British Pound and the US Dollar are both widely traded currencies, and this pair is known for its high volatility, making it an attractive option for traders looking for opportunities to profit from market movements.
Other currency pairs that have high liquidity include USD/CHF, AUD/USD, and USD/CAD, accounting for about 5% of the daily forex turnover each. USD/CHF is often used as a safe-haven currency, while AUD/USD and USD/CAD are popular among traders because of their correlation with global commodity prices.
Factors that affect liquidity in forex trading include market hours, economic news releases, and geopolitical events. The forex market is a 24-hour market, and liquidity varies depending on the trading session. The Asian trading session is less liquid than the European and US sessions, which are the most active. Economic news releases, such as Non-Farm Payrolls, Gross Domestic Product (GDP), and Central Bank policy decisions, can affect liquidity by increasing volatility and trading activity. Geopolitical events, such as elections, wars, and natural disasters, can also affect liquidity by causing sudden shifts in market sentiment.
In conclusion, forex pairs that have more liquidity offer better execution, tighter spreads, and lower transaction costs. The most traded currency pairs globally are EUR/USD, USD/JPY, and GBP/USD, followed by USD/CHF, AUD/USD, and USD/CAD. However, liquidity varies depending on market hours, economic news releases, and geopolitical events. Therefore, traders must understand the factors that affect liquidity in forex trading to make informed trading decisions.
