Not only is the global daily trading volume in the forex market in excess of $6.6 trillion, but it’s also forecast to grow at a CAGR of 7.5% between 2021 and 2026.
Interestingly, the market’s daily trading volumes are dominated by a select few currencies, although the ranking of the biggest and most profitable pairs tends to vary from year to year according to a multitude of macroeconomic factors.
But what exactly is a currency pair, and what are the biggest trades so far in 2022?
What is a Currency Pair?
Forex is a derivative product, which means that international currencies can be bought and sold in pairs without requiring traders to assume ownership of the underlying financial instrument.
This enables you to profit directly from speculation, making it possible to bank a profit even in a depreciating market climate.
Each pair represents the quotation of two different currencies, with the value of the first (base) currency quoted directly against the second (quote) currency.
In simple terms, this explains how much of the quote currency is required to buy a single unit of the base currency, with this real-time rate of exchange fluctuating continually (and often markedly) during the trading day.
Most major and minor pairings use a floating exchange rate to help determine their value, which means that the live price is dictated by supply and demand factors.
However, some emerging countries look to minimise the volatility of their respective currencies by pegging themselves to either the US dollar (USD) or the Euro (EUR).
The Top 4 Currencies to Trade in 2022
When you start to learn trading for beginners, you’ll be advised to start small by dealing with one or two major currency pairings. But which options are the best from a trader’s perspective in 2022? Let’s get into it:
#1. The USD/JPY
Known colloquially as ‘the gopher’, the USD and the Japanese yen (JPY) pairing is always one of the top five traded currencies in the world.
However, it’s at the top of our list in 2022, thanks largely to the prevailing economic uncertainty and the continued fallout from the coronavirus pandemic.
But why does the USD/JPY offer such value in a volatile economic climate? Well, it boasts particularly high levels of liquidity, enabling you to buy and sell the pair in large volumes without disproportionately increasing volatility.
From a risk averse trader’s perspective, the USD/JPY also has one of the tightest spreads in the FX market. This translates into a reduced trading cost, which is great when looking to manage your capital more efficiently or spread it across a broader basket of currencies.
#2. The EUR/USD
Next up is the EUR/USD, which is typically the world’s single most traded currency pair and one that accounts for an estimated 24% of total daily trading volumes.
When you learn how to trade forex as a beginner, often the first pair you’ll come across is ‘the fibre’. After all, the EUR and the USD represent the world’s two largest and most trusted economies, once again creating increased liquidity across all FX market trading sessions.
The EUR/USD shares many other similarities with the gopher too, as it’s associated with remarkably low spreads and considered to be relatively stable throughout the year.
This also explains the popularity of the pair among so-called “scalpers”, who look to execute multiple short-term trades in a bid to profit from relatively small price movements that occur over a matter of minutes.
#3. The GBP/USD
This is another universally popular currency pair, and one that’s often referred to as ‘the cable’.
Pitting the British pound against the greenback, the GBP/USD is slightly different from the first two pairings on our list, primarily because it’s noticeably volatile and prone to quite sudden fluctuations in price.
This can translate into disproportionate profits or losses depending on the movements that the market makes, alongside the amount of leverage that you take on as part of your trades.
So, the GBP/USD has become increasingly popular through 2022, as traders look to leverage the market’s increased volatility through vehicles such as day trading.
#4. The EUR/GBP
The EUR/GBP has undergone significant turmoil since the Brexit vote in 2016, with both currencies continuing to trade in a relatively narrow range against other major currencies.
However, ‘the chunnel’ remains a strong and widely traded currency pair, thanks to its core fundamentals including the close proximity of the two regions and their consistent (albeit recently disrupted) flow of trade over the years.
Interestingly, the decision of the UK to extradite itself from the EU has increased volatility and made the pair more attractive to experienced investors and day traders.
This year has also seen the EUR/GBP become increasingly popular as countries have looked to recover from the coronavirus, with regional interest rate changes having caused multiple price fluctuations so far in 2022.