Lesson 7: The Different Forex Currency Pairs and Their Volatility

In this lesson, we will therefore look at the different currency pairs of Forex and their specificities.

First, the forex market is split into two main groups, with major currency pairs and minor pairs.

Major currency pairs

The major pairs are the pairs that measure a currency against the dollar (a pair that contains USD):

EUR / USD (Euro Dollar) 
USD / JPY (Dollar Yen) 
GBP / USD (Dollar Pound) 
USD / CHF (Dollar Swiss Franc) 
USD / CAD (Dollar Canadian Dollar) 
AUD / USD (Australian Dollar) 
NZD / USD (Dollar Neo Zeeland US Dollar)

Minor currency pairs

Minor currency pairs are currency pairs that involve currencies that face the dollar on major pairs (EUR, JPY, GBP, CHF, CAD, AUD and NZD):

EUR / CHF 
EUR / GBP 
EUR / JPY 
EUR / CAD 
EUR / AUD 
EUR / NZD 
GBP / JPY 
CHF / JPY 
CAD / JPY 
AUD / JPY 
NZD / JPY 
AUD / NZD 
GBP / CHF

Other currency pairs

There are many other so-called "exotic" currency pairs, but they often have disadvantages, including high spreads, erratic fluctuations etc, and we recommend beginners to focus on major currency pairs. When experienced traders the major and minor pairs are enough enough to avoid too exotic pairs!

All currency pairs are not equal to spread and volume

Spreads by brokers vary according to currency pairs, and generally, the lower the currency pair is traded on the forex, the higher its spread.

And with regard to the share of each currency pair in the total $ 4 trillion of daily forex trades, the inequities are enormous, and 3 currency pairs stand out: EUR / USD, USD / JPY and GBP / USD :

EUR / USD: About 30-35% of the volume of the Forex 
USD / JPY: About 15-20% of the volume of the Forex 
GBP / USD: About 10-15% of the forex volume

In total, three currency pairs account for about 55-70% of forex transactions , and these are actually the most interesting currencies to trade, those for which the news is the most dense, and for which liquidity is the bigger.

Apart from these 3 most-traded pairs, all other pairs account for little more than 5% of the volume of forex trading, except for USD / CHF and AUD / USD.

All currencies are not equal to the volatility

Volatility is the average amplitude of variation of a currency pair. The higher the volatility, the more it moves, and the greater the potential for gains and losses.

However, not all currencies are on an equal footing at this level. You can see below the average daily volatility over 2 years of the main currency pairs (given at the end of 2014).

* The volatility of the major pair:

EUR / USD: 81.5 pips 
USD / JPY: 84.5 pips 
GBP / USD 95 pips 
USD / CHF: 65 pips 
USD / CAD 60 pips 
AUD / USD: 79.5 pips 
NZD / USD 78 pips

* Top 5 currency pairs most volatile forex:

1 / USD / MXN: 1070 pips 
2 / EUR / NOK: 520 pips 
3 / USD / NOK: 515 pips 
4 / USD / PLN 265 pips 
5 / EUR / TRY: 180 pips

* Top 5 of the least volatile currency pairs of Forex:

1 / USD / HKD: 15 pips 
2 / EUR / CHF: 40 pips 
3 / USD / INR: 47 pips 
4 / EUR / GBP: 48 pips 
5 / USD / CAD 60 pips

More details on major currency pairs and their volatility

EUR / USD
* Most volatile trading hours: 1 pm-3pm
* Most volatile day of the week
: Wednesday * Long-term volatility trend: Bearish

USD / JPY
* Most volatile trading hours: 1 pm-3pm
* Most volatile day of the week
: Wednesday * Long-term volatility trend: Bullish

GBP / USD
* Most volatile trading hours: 9-10am and 1pm-5pm
* Most volatile day of the week: Tuesday
* Long-term volatility trend: Neutral

USD / CHF
* Most volatile trading hours: 1 pm-3pm
* Most volatile day of the week
: Wednesday * Long-term volatility trend: Bearish

USD / CAD
* Most volatile hours: 13-14h and 15-16h
* Most volatile day of the week: Thursday
* Long-term volatility trend: Neutral

AUD / USD
* Most volatile trading hours: 2-3h and 13-15h
* Most volatile day of the week: Wednesday*
Long term volatility trend: Bearish

NZD / USD
* Most volatile trading hours: 1 pm-3pm
* Most volatile day of the week:
Wednesday * Long-term volatility trend: Neutral