Global Most Traded Currency Pairs

Coming up with a solid global ranking outside the top couple of forex pairs is a challenge because the regional reports tend to focus on the main pairs traded in those regions and don’t parse out some of the less active ones. For example, the USD/CAD and USD/CHF currency pairs are not reported individually in the Japanese data, so it’s hard to get them in the proper rank order. The list below is probably a pretty close representative of how things rank on a global basis, though (based on April 2011 data).

It should be noted that EUR/USD is way ahead of the other most traded currency pairs in terms of daily trading volume. That one pair does something like 50% more volume globally than both USD/JPY and GBP/USD combined.

You will notice that I did not include the more regionally-oriented forex pairs like USD/MXN, EUR/SEK, USD/KRW, etc. If you’re interested in them, I recommend exploring the individual report (links are provided below). Also, these figures are based on spot market volume, and do not include swaps, forwards, or options.

What Forex Pairs Should I Trade?

If you are a short-term trader then you’re going to want to focus on the most traded currency pairs because they are generally active enough in that time frame to be worthwhile, and also offer the best bid/ask spreads. If you are specifically a day trader or scalper, you’ll want to focus on the the top forex pairs for the region you trade in to further ensure the best trading conditions. Traders who operate in longer-term swing and position trades, though, need not concern themselves as much with focusing on the most traded currency pairs, though. The costs and requirements for short-term movement are not a real issue.

Most Traded Currency Pairs by Region

Here is a center-by-center breakdown of the top forex pairs for each region. Again, this is for spot trading only. Swaps, forwards, and options can add considerably to the volume totals (more in some regions than in others). If you want to see the full center totals you can follow the links to the individual reports.

London

London remains by far the highest volume trading center for foreign exchange. It therefor won’t come as much surprise that the global pair ranking is very similar to the one for this specific center. Based on the most recent data, here are the most traded currency pairs in for the London market.

As was the case with the global figures, EUR/USD does about 50% more volume itself than the next two pairs combined. There are a lot of pretty active regional pairs (non-Euro Zone continental currencies) as well as those listed above. See the Bank of England website for additional details.

U.S. (New York)

The second largest of the trading centers is the U.S., with New York still the main focal point. Here are the most traded currency pairs in for this region.

The top non-majors currency pair in this region is USD/MXN, with USD/BRL only doing about a third of that volume. See the New York Fed website for additional details. Note that the Canadian Foreign Exchange Committee also does a volume survey, but it does not break the figures out into individual currency pairs.

Tokyo

Here are the most traded currency pairs in for the Japanese market. As indicated above, the Japanese report does not have very much depth in terms of specifically parsing out the most traded currency pairs, so the list isn’t as long as for other regions.

There is a big drop off from USD/JPY to the EUR pairs,with the former doing between three and four times as much volume. Similarly, then another big drop to the other two most traded currency pairs from the EUR ones. See the Tokyo Foreign Exchange Market Committee website for further details.

Australia

Australia (primarily Sydney) has become a very significant market in global foreign exchange on a total volume basis. It’s not a broad market, however, in that trading in the Aussie dollar dominates (not surprisingly). Here are the most traded currency pairs.

Among the pairs trading in Australia, AUD/USD does about four times as much volume as EUR/USD, and it drops rapidly off even further after that. See the Royal Bank of Australia website for further details.

Singapore

Singapore can’t compare to London or New York for sheer trading volume, but it is a broad-based market where most of the major Asian regional currencies trade. Here are the most traded forex pairs.

The volume pattern in Singapore shows EUR/USD with nearly 2.5 times as much volume as USD/JPY. Interestingly, EUR/USD does about as much volume in Singapore as in Australia, both of which do about double the volume in Japan. See the SFEMC website for more details.

The average trader/investor thinks of things like price data, analyst reports, education and all the various goods and services related to trading and investing as an expense. They are always thinking first about how much something will cost and are continuously trying to get something free or on the cheap.

The professional trader/investor has a very different mindset. He asks the question how much money service or product can help them make, or help them save money through improved efficiencies and things like that. It is only after they have considered the benefit that they consider the cost. If it’s a good return on their money, the go for it.

In other words, professionals are looking at all of their decisions vis-a-vis their actions as market participants as investment decisions while the average person only looks at their actual buys and sells in the market that way. This is one of the reasons why the average trader struggles.

And lest you be tempted to say that the pros only spend money because they have it to spend, let me tell you that investment banks and trading operations can be some of the most penny pinching folks you will ever find. They are constantly looking for ways to cut costs, which means they will only spend money on stuff they know will help them make or save money in their operations. Every expenditure must have a very solid business case.

Consider this. We were talking about pricing for our analytic services – the one I currently work on and the one he current runs. His is one directed toward portfolio manager in a very customized fashion and he charges $1000+ per month for it. The one I’m on is much more immediate and real-time in nature with a target audience of institutional sell-side folks and prop traders. We charge about $300/mo per user for it. When we talked about those figures, my mentor laughed at how relatively cheap they were. He, of course, looks at it from the point of view of how much money he could make off of the information and analysis we provide the user. It is certainly well in excess of what we charge for it.

Just so you know, my mentor trades the type of size many of us aspire to reach one day. In fact, he was saying that he’s figuring on making a seven figure profit this year from his various investing and trading activities. He’s been in the business in one fashion or another since the 1970s and actually helped create the group I work for now.

Now you might be tempted to think of professional and non-professional traders in terms of whether they trade for a living or are employed to do so. That’s one way to look at it for sure. A better way, though, is to think of it in terms of their approach to trading. Professional traders treat it as a business, regardless of whether it’s their living.

If you want to get the most out of trading, treat it like a business and consider every decision to spend or not spend money on your trading as an investment decision for your business. Also remember that you generally get what you pay for – as in anything else. My mentor’s service is rated as one of the 2-3 best independent research sources out there and extremely highly regarded by its subscribers. They very happily pay what he asks because they’re getting a great service produced by a guy with 30+ years of experience.

There is no single secret to successful trading!

And by that I mean there is no secret wisdom passed down from master to pupil, or sacred texts sharing with readers the knowledge of the ancient masters. The idea that some traders are using secret techniques which ensure their trading success and that without those secrets one cannot possibly trade well is farcical. That simply isn’t the way of things. Sorry to disappoint you if that was your thinking.

Trading success comes from developing for yourself a good, well thought-out trading plan. That’s a plan which is based on your personal needs, strengths, interests, and all of that. This is something which takes time. It will not happen in one day. It takes exploring and learning.

You will often hear from successful traders that it took them a couple of years before they really found their feet trading. I know that was certainly my own case. You try things. Some work and some don’t, and you make adjustments.

Remember, though, that a trading system is not a trading plan. It’s only part of one. (see the series of articles I wrote about building a trading plan starting with Creating Your Own Trading Plan.)

Trading success also comes from being consistent. That means repetitively applying your trading plan over and over and over again. That probably sounds pretty boring, but the truth of the matter is that good trading quite often isn’t the most stimulating thing in the world – at least in terms of the execution.

Both elements of this are equally important. Not having a well developed plan will mean failure just as not sticking to that plan will. As Brett Steenbarger recently wrote in his blog:

“It’s a common observation that traders fail because they don’t stick to their plans. My experience is different. Traders develop plans and trade patterns that simply don’t work; they’re based on randomness. When the patterns don’t work, traders become frustrated and abandon their plans. So it looks like lack of discipline causes trading failure. But planning doesn’t create success; sound planning does. Sticking to plans based on randomness is no virtue.”

And it most definitely doesn’t stop there. Another secret to successful trading is that you must never stop learning. Steenbarger noted “The successful traders have a passion for markets, which is very different from a passion for trading.” and that “The ratio of “practice” time (time spent on markets outside of trading) to trading time is a worthwhile indicator of a trader’s prospective success.” From a system trader’s perspective, Bill Rempel added “System development and testing never stops.”

Markets change and you must adapt to survive.

Actually, it all reminds of a movie that most likely you’ve never even heard of – A Circle of Iron. It’s based on a script written by Bruce Lee with David Carradine one of the lead actors. The hero goes on a quest to find the Book of All Knowledge. Of course he must overcome many challenges to find it. When he finally gets to read the book (spoiler coming!) he finds that it’s nothing but mirrors. It’s all very Zen, of course, but the lesson that the secret lies with you is very much the point I’m trying to make here.

So there you have the secret to winning in the markets.

You see trading plans necessarily must be very personalized things. That makes the idea of a specific template something difficult to contemplate. A template is rigid, and as such isn’t going to work for everyone or even necessarily for any given trader all the time.

With that in mind, I’m going to do a bit of excerpting from The Essentials of Trading over the course of a couple of posts to share my thoughts on how to put together a good trading plan. I’ll start of in this post by laying the groundwork.

What’s a Trading Plan?

The starting point of effective trading is the Trading Plan. One can think of it like a Business Plan for the trader. Just like the Business Plan, the Trading Plan is a specific outline of current status, objectives for the future, and the expected path to reach those goals.

In plain language, the Trading Plan is a set of rules governing the trader’s efforts in the markets. It brings together all of the what’s, when’s, where’s, why’s, and how’s of trading in an all encompassing definition of what the trader is seeking to accomplish and how he/she will go about trying to make it happen. The Trading Plan is the starting point for every trader looking to succeed in the markets.

Please note that while we may be speaking here in terms of the trader as an individual, everything presented is equally applicable to a fund or company environment. The Trading Plan still must be constructed, albeit from a different perspective.

Why does one need a Trading Plan?

The very simple answer is that it allows the trader to measure their performance in a very clear, straightforward manner, on a running basis. Just as one uses a map to both establish the path to be taken and to judge the progress which has been made, the Trading Plan defines the trading system and gives the trader benchmarks for use in judging their execution of it.

Be aware that a Trading Plan and a Trading System are two different things. The latter is, in brief, the way one determines entry and exit points—the timing of trades, if you like. The former is more over-reaching in that it includes the Trading System, plus other important things like money management.

What is the purpose of the Trading Plan?

There are several reasons to have a Trading Plan, but probably the biggest is the way it simplifies things. A good, well thought out Trading Plan takes a great deal of excess thinking out of the trading process. Decision-making is very clear-cut. The Plan defines what is supposed to be done, when, and how. Trading can be a very emotionally charged venture. That can lead to all kinds of less-than-optimal behavior. The Trading Plan takes that out of the equation. Just follow the plan.

The Trading Plan is also very, very handy in helping one to understand the reasons for performance problems. If one is suffering from losses beyond what would be expected (as defined by the Plan), there are only two possible reasons. Either the Plan is not being followed, or the there is a problem with the trading system. That’s it. Without the Trading Plan, resolving performance issues is a much more complicated process.

While a Trading Plan is intended to help the trader succeed in the markets, having a Trading Plan is not a guarantee of generating profits. A Plan is only as good as the components in it.

I’ll talk about those components in upcoming posts.

That said, here are the five trading books I would rate as the best I’ve ever read. Obviously, I can’t include books I haven’t read, so there might be some really good books out there which belong here but I just haven’t got to yet. Of the many I have, though, here are the cream of the crop – in no particular order.

Market Wizards, by Jack Schwager
This book won’t teach you any specific trading systems or anything like that. What it will give you, though, is insights into the thinking and approach of some of the great traders and investors of our time. The interviews Schwager conducted with these men and women provide some really outstanding nuggets of wisdom. By the way, I lump The New Market Wizards in here as well.

How to Make Money in Stocks, by William O’Neil
This book is the one I give credit for launching both my own trading and market analysis careers. Ironically, the title of the book is of the sort that strikes one as being of questionable design, the type we see so often promising lots but delivering little. In this case, though, the book really delivered for me. It was my introduction to a great many things – technical analysis, screening, researching methodologies, and having a comprehensive trading plan. This book contains a fully described and specific trading system which became the basis for the stock trading I still do today.

Enhancing Trader Performance, by Brett Steenbarger
Brett Steenbarger is one of the most insightful commentators on trader psychology and development around today. This book focuses more on the development side of things, though it does touch on some of the psychology elements covered in his earlier book, The Psychology of Trading, as well. Being a coach and educator myself I found this an incredible resource both for helping me help each other and for traders looking to help themselves. (Read my full book review here)

Markets In Profile, by James Dalton
This book is a discussion of the Market Profile analysis and trading methodology. More than that, though, it is an intensive discussion of how the way the markets at their core play out through the way prices move. This book is a follow-up to the author’s previous book, Mind Over Markets, which is a bit more mechanical regarding the Market Profile technique. (Read my full book review here)

Trade Your Way to Financial Freedom, Van K. Tharp
This book presents an excellent systematic way of approaching the application of risk and money management in trading. If you read it with the right mindset (not the one implied by the title), you can get a huge amount of value out of it. The concept of “expectancy” is more than worth the price of the book all by itself. There is a healthy does of trading psychology along the way also – all of which is quite useful as well, especially given that the author was among the first to be involved in the area of modelling success in trading.

These, of course, are my own views. Others will no doubt have their own ideas. Perhaps that includes you? By all means, feel free to share your own thoughts on the subject.

And definitely take a look at all the trading book reviews I’ve posted here on the blog for your benefit.

Here’s how they break down:

Entry #1: Books by Brett Steenbarger

Entry #2: The Market Wizards Collection of Books, Audio, and Video

Entry #3: Liar’s Poker – a view from the inside

Entry #4: Paul Erdman Books – great financial fiction

Entry #5: The Darker Side of the Markets – stories of the bad boys

Entry #6: Trading and Markets Movies – drama to comedy

Entry #7: Market Profile

Entry #8: Trading Fiction – great stories around trading

Entry #9: George Soros and Jim Rogers – two of trading’s biggest icons

Entry #10: Risk and Money Management

Entry #11: Metastock – fantastic charting and system development software

Entry #12: Everything Else!

By all means, feel free to add your comments, thoughts, suggestions, and whatnot. What do you like, don’t like, recommended, advise against, enjoy, hate?

The post’s author made some good points in general, but had a few things incorrect. I figure that if he is off in his thinking on the subject, then it’s likely other stock traders and investors are as well. Let me lay it out here.

The first error the post author made was to say that when you trade stocks your broker makes the spread because it is on the other side of the trade. That’s simply not true.

In an exchange driven market like stocks you are rarely trading against your broker – and pretty much never if you’re using a discount broker. Brokers are just pass-through agents. Your order goes into the market and is matched against what’s available there, meaning an opposing order put in by some other trader, probably through some other brokerage (or directly). That other trader could be a market maker, an institution of some sort, or even just some other individual trader like yourself.

The point is, your broker doesn’t keep that money as profit. The people who profit from the spread are the market makers who constantly seek to buy at the bid and sell at the offer. They are essentially being paid for providing liquidity. (Note: Price makers are always better off than price takers).

The author also used the term pay to describe the impact of the spread on your account and that essentially you pay half up front and half when you close out the trade. Again, that’s not quite right.

You never “pay” the spread. Yes, if you go in and buy using a market order your trade value will immediately be lower because you will have bought at the ask(offer) price and would have to sell at the lower bid price. It’s not as though that money actually comes out of your account, though, like a commission. It’s a paper loss.

And you only take the hit to your position value once, when you first put the trade on, not half when you open and half when you close. When you buy you immediately suffer a paper loss equal to the spread value. From that point on, however, your position value is based on the bid price. You don’t take another hit getting out of the trade like you do with your commissions.

Lastly, the blog author said that long-term investing was better than short-term trading because ”…it takes less gain to overcome the expenses”. That’s factually incorrect.

If the spread is $0.50 then it takes a $0.50 move in the market in your favor to overcome that cost. Your holding period doesn’t matter. If you’re trading frequently and going after smaller profits, though, the spread does represent a larger portion of your gains, as does the commission. I’m guessing that’s what he really meant.

Firstly, I can completely understand how mind-boggling it can be. There is seemingly a constant stream of data coming out. Forex traders in particular see loads of it each day as the various major industrialized countries put forth economic data and have prominent speakers on the schedule. Then too there are any number of things that can crop up anywhere in the world related to gold or oil, for example.

Here’s the first thing I would say in that regard.

It is possible to narrow significantly the list of scheduled items that are likely to have a significant impact on the market you trade. Clearly, a stock trader has to worry about earnings reports, but retail sales data may be completely meaningless. A forex trader has to worry about things like trade, but won’t concern themselves much with corporate earnings. An interest rate trader will certainly keep an eye on employment figures, but won’t worry as much about the speech by the head of the European Central Bank.

The implication is that you can generally pick and choose the calendar events that you need to focus on for your trading. Of course there are always going to be surprise events that happen, but you can only deal with that though a generally solid risk management approach.

Now, once you have identified the data releases and other events that are meaningful to the market you trade there are three ways to trade in relation to them.

1) Take positions ahead of the releases, speech, or whatever.
This is basically gambling and not recommended.

2) Make sure that you are flat ahead of the aforementioned events.
For most short-term traders this is generally the best approach. It keeps one out of the wildness that can come with unexpected results. That volatility makes meaningful trading very challenging, and not very profitable for most people. The majority of folks are better off waiting to see how the market settles out afterwards.

3) Trade in a time frame for which the kind of intraday swings created by news events are of no significant impact.
This generally means taking on positions with relatively wide stops that are expected to be held for at least several days, if not weeks or more. The approach here is to play the bigger price movements with the view that intraday swings are just blips.

You personal trading style will dictate the approach you take.

One other thing I would add in comes in the area of trading systems and their performance around news events. If a system has been tested over a sufficiently large data set relative to the time frame it trades then that means it would include any number of data releases and other news items, and thus their impact on prices. As such, the user of such a system, if the performance is deemed solid, should not concern themselves over much with releases. They are, essentially, factored in to the system’s performance.

As you are no doubt aware, all financial markets (and really anything involving trade) is based on a bid-offer pricing process. The bid is what someone is willing to pay. The offer (or ask) is what someone is willing to sell at. The question about where prices comes from really speaks to where those bids and offers come from. The answer is the market makers.

This is a term you might be familiar with. All markets have market makers. In the definition most folks are aware of, they are the folks who provide liquidity to the market by standing ready to buy and sell. They do it constantly throughout the trading day, earning the spread each time the buy at the bid and sell at the offer. Normally, they don’t hold any positions for directional trades. They just repeatedly grab the spread.

Now, when you think market maker you probably imagine the guy in the futures trading pit or on the floor of the stock exchange. They certainly fit the bill, but they aren’t the only one. In the over-the-counter (OTC) market the dealers are the market makers. In terms of stocks, that can mean brokerage houses in some cases. In markets like fixed income (bonds, etc.) that is generally the major investment banks. The same is true for forex via the interbank market.

Technically, market makers can set the prices to be whatever they want. Of course there is competition and great information flow these days, so you generally will see prices kept very close regardless of whether we’re talking an exchange-based or OTC market. So when you see prices changing, what you see is the result of the market makers reacting to supply and demand in the market, seeking to find the level at which the most action will take place (and thus the greatest opporunity for them to capture the spread as frequently as they can). [For more information on how this auction process plays out in prices I highly recommend reading Mind Over Markets.]

Now the advent of direct access and electronic trading (e-contracts) has allowed the individual trader to become something of a market maker unto themselves. We can enter our own bids and offers, which may or may not get hit. The difference, of course, is that we don’t trade the same volume in most cases, and are generally looking to play directional moves, not just grab the spread.

My definition of trading for a living is pretty simple. I think of it as using trading to generate the earnings you need to pay for daily life – housing, utilities, food, etc. Think of it like a job with a salary or hourly wage. You put in your time and you take home your pay for doing so.

This contrasts with what most people think of when the having trading in mind. They see it as using the markets to create profits in order grow portfolio starting value $X to portfolio value $Y, with $Y being some higher value than $X. How much isn’t the real question for this discussion. It’s sufficient to say that most people think of trading as an asset building exercise.

The reason I differentiate things here is because trading for a living requires a different mindset and approach than does “normal” trading. Think about it. If you are trading to pay your living expenses, that means you need to make a certain amount of money each month, money which needs to be withdrawn from your account. That income needs to be fairly predictable in nature. Sure, you can have some higher months and some lower ones, but there cannot be too much variability or you risk not being able to pay the bills some months!

The regular trader, on the other hand, is more readily able to have ups and downs in their trading performance. They can wait out drawdowns because the money isn’t needed for life’s general expenses.

What does that mean in terms of approach?

It’s firstly a question of trade frequency.  Those who trade for a living are usually looking for small, consistent profits. That means trading on a regular basis. I don’t mean to say with high frequency, though. Sure, that can be the case, but what I mean to say is that generating consistent profits means having consistent opportunities to do so, which means trading regularly.

The second part of the equation is risk. Regular traders can ride out drawdowns knowing that future profits will more than make up for it. One trading for a living, though, cannot do that. A drawdown can mean withdrawls from the account that reduce the available trading funds, which could put pressure on future income potential. That’s not a risk that can be taken. Sure, there are bound to be small drawdowns along the way, but they cannot be big, the kind requiring significant time to be made back up. Normally, this equates to relatively smaller position sizes for those trading for a living.

I should note that I don’t necessarily consider “professional” traders the same as those who trade for a living. My reason for differentiation is that in most cases the pros are not dependent upon their week-to-week or month-to-month results to live on. They either have a salary of some kind, or if they are just trading their own money, they have a sufficiently large asset base as to be more than able to make withdrawls to meet their living needs should the trading suffer during a particular timeframe.

Also, trading for a living doesn’t necessarily mean trading eight hours or more each week. I wouldn’t automatically call trading for a living full-time trading, or vice versa. It is perfectly possible for one to only spend a couple of hours per day, or maybe even less, in the markets and earn enough to live on. Similarly, a regular trader can definitely put in loads of screen time hours. The time requirements are just a question of the required trade frequency one has and the strategy employed.

These are all things to keep in mind if you are giving any thought to giving up your regular job to try to make it trading. My personal advice on that would be to make sure you have a sufficiently large capital base as to make earning your required profits quite easy – meaning it wouldn’t require much risk.