Liquidity by currency pair

There are a number of factors that influence the trading personalities of major currency pairs, and they all stem from real-life — and in most cases, quantifiable — determinants. The primary element that defines a currency pair’s trading personality is its liquidity.

Although the global forex market is the largest and most liquid of all financial markets, that liquidity is not evenly distributed across all currency pairs. Also, liquidity can vary significantly throughout the trading day depending on which financial centers are currently active.

The most recent Bank for International Settlements (BIS) triennial survey of the global foreign exchange market, conducted in April 2004, indicates the relative proportion of volume among major currencies has remained mostly steady since the surveys first began in 1989.

The numbers show the U.S. dollar was on one side of 89 percent of all transactions, the Euro 37 percent, the Japanese yen 20 percent, the British pound 17 percent, the Swiss franc 6 percent, and the Australian and Canadian dollars around 5 percent each. (One-sided percentages will total 200 percent since another currency is always on the other side.) As such, these seven currencies account for about 90 percent of all global volume in currency trading.

Another BIS breakdown of trading volume by currency pair shows the Euro/U.S. dollar (EUR/USD) pair remains the most actively traded pair, accounting for 28 percent of daily forex volume. This is followed by the U.S. dollar/Japanese yen (USD/JPY) at 17 percent, British pound/U.S. dollar (GBP/USD) at 14 percent, Australian dollar/U.S. dollar (AUD/USD) at 5 percent, and U.S. dollar/ Swiss franc (USD/CHF) and U.S. dollar/Canadian dollar (USD/CAD) at about 4 percent each. These six currency pairs, commonly know as “the majors,” account for 72 percent of average daily volume; non-U.S. dollar pairs account for only about six percent of volume.