All new traders are told that they should consider the most commonly traded FX rates when they begin. While this is a good idea you need to know what these most commonly traded FX rates are. When you know about them you can determine the currency pairs that you are going to use and how you should be trading each currency.
The US Dollar
The US dollar is possibly the most commonly traded currency. The currency is controlled by the Federal Reserve which is the central bank for America. The US dollar is the world’s reserve currency and part of the world’s largest economy. While the forex rates for the dollar are affected by economic fundamental data it is also influenced by the central bank and interest rates. When forex traders talk about the US dollar it is often referred to as the greenback because of the colour of the currency.
The Euro is often seen as the US dollar’s enemy because of the steady rise of popularity and value. The Euro is controlled by the ECB or European Central Bank. The Euro is actually one of the newest currencies in the world as the Euro Zone was only created recently. This currency is quite volatile and able to swing up to 40 pips on a normal day and 60 pips at the more volatile times. Euro-based currency pairs trade best during the European session of the forex market which runs from 2am to 11am EST.
The British Pound FX Rates
The pound is controlled by the Bank of England and before the Second World War was the world’s reserve currency. The Pound is one of the more volatile European currencies and is often referred to as the cable by forex traders. Daily swings for this currency can range from 20 pips to 120 pips. The most volatile time for this currency is during the European trading session and it sees minimal movements during the Asian session.
The Japanese Yen
The Japanese yen is part of the world’s second largest economy and controlled by the Bank of Japan. The Yen is often traded as part of carry trading strategy because of the interest rates on the country. The interest rate for the Yen is generally the low rate in the pair. The result of this use has lead to erratic trends for this currency with daily ranges varying from 40 pips to 150 pips. If you want to trade the Yen with limited risk of volatility look at trading during the European and American session crossover.
The Canadian Dollar
The Canadian Dollar also known as the Loonie is controlled by the Bank of Canada. The trade ranges for this currency is generally 40 pips a day. However, the one unique aspect of the Loonie is that the prices are closely linked to crude oil prices. This is due to Canada being one of the major exporters of this commodity.
The Swiss Franc
The Swiss Franc is controlled by the central bank of Switzerland, the Swiss national Bank. This currency does not move heavily in any one trading session. The daily range for this currency is also one of the most stable at around 35 pips every day. This currency is commonly traded during the European trading sessions.