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Traders have the luxury of highly leveraged trading with lower margin requirements than in equity markets. But before you jump in head first to the fast-paced world of forex, you'll need to know the currency pairs that trade trade most often. Here's a look at six of the most tradable currency pairs in forex.
The EUR/USD currency pair tends to have a negative correlation with USD/CHF and a positive correlation with the GBP/USD. This is due to the positive correlation of, respectively, the euro, the British pound, and the Swiss franc.
USD/JPY: Trading the "Gopher"
The next most actively traded pair has traditionally been the USD/JPY. This pair has been sensitive to political sentiment between the United States and the Far East. The pair tends to be positively correlated to the USD/CHF and USD/CAD currency pairs due to the U.S. dollar being the base currency in all three pairs.
GBP/USD: Trading The "Cable"
The GBP/USD pair tends to have a negative correlation with the USD/CHF and a positive correlation to the EUR/USD. This is due to the positive correlation between, relatively, the British pound, the Swiss franc, and the euro.
USD/CAD: Trading the "Loonie"
USD/CHF: Trading The "Swissie"
The USD/CHF currency pair tends to have a negative correlation with the EUR/USD and GBP/USD pairs. This is due to the strong positive correlation between the Swiss franc, the British pound, and the euro. The franc has long been thought of as a safe haven for forex traders in times of political unrest.
AUD/USD: Trading The "Aussie"
The AUD/USD currency pair tends to have a negative correlation with the USD/CAD, USD/CHF, and USD/JPY pairs due to the U.S. dollar being the quote currency in these cases. The correlation with the USD/CAD is also due to the fact that both the Canadian and Australian dollars share a positive correlation with each another as both are commodity block currencies.