Everything you ever wanted to know about the most popular forex and CFD products

In this article we are going to explore ten of the most popular trading instruments across retail traders from FX to CFDs and crypto.


In this article we are going to explore ten of the most popular trading instruments across retail traders from FX to CFDs and crypto.

We'll look at the how volatile each product is (how much does it move?), typical costs of trading each product (what is the average spread?) and the history and characteristics of each market (what makes it move? how do people trade it?).

You’ll soon notice some trends. For example the spread charged to trade corresponds to how volatile the product is: the more a product tends to move around the larger the spread or cost of entering and exiting trades. Also, products may be driven by multiple factors: some specific to them (say European elections for EURUSD) and some relating to wider market dynamics (say the market’s general attitude to overall risk for EURUSD).


EURUSD (eurodollar)

 

EURUSD is by far and away the most popular and heavily traded forex pair.

Because it is so heavily traded liquidity i.e. the ability to buy and sell instantly is abundant. Spreads are typically under a single pip or 0.01% of notional price, meaning you could buy and instantly sell and you would lose ‘only’ 0.02% in transaction costs.The daily range at time of writing was 44 pips or 0.4%.

Of course EURUSD in the literal sense is a bet on the relative strength of the European and US currencies. This means that negative news for the Eurozone will tend to make EURUSD trade lower (EUR lower vs USD) whilst negative news for the US will tend to make EURUSD trade higher (USD lower vs the EUR).

However, EURUSD is one of the 'bellweather' products for financial markets and is often traded as a proxy for 'risk on/risk off'. When the outlook is good for the global economy EURUSD will generally react by trading higher and when the outlook is bad EURUSD will generally trade lower, even if this outlook or feeling of risk is not at all specific to the Eurozone.


XAUUSD (gold)

 

Gold is by far the most favoured metal for retail traders, especially in countries where physical gold has a strong historic tie to wealth such as India and China.

Typically traded as USD per oz of gold, the pair is relatively liquid - far more so than silver - with spreads of between 10-20 cents. Typical daily range at time of writing was $9 or 0.7%.

Like the article? Please support us by sharing it!

Gold is seen as a safe-haven: when participants lose trust in governments they buy gold as a long-term store of wealth since there is a fixed supply of gold and governments cannot print more of it - unlike they can with their own currencies.


GBPUSD (cable)

 

A top three FX pair, GBPUSD (and the various GBP crosses such as GBPJPY, EURGBP) is very popular with retail traders.

Named "cable" after the transatlantic under-sea wire that transports trading data between London and New York, this pair can be quite volatile and spreads are wider than EURUSD - typically around two pips. The daily range at time of writing was 0.6% or 78 pips.

GBPUSD is another 'risk' pair that tends to do well when markets are optimistic and poorly when they are gloomy. Of course its price also reflects the market's views on the relative prospects of the UK currency versus the US currency and thus is affected by domestic developments.


USDJPY (the widowmaker)

 

USDJPY is the second largest currency pair and, like EURUSD, trades with a very tight spread - typically around a single pip. Trading ranges at time of writing were 0.5% or 49 pips.

Nicknamed "the widowmaker" because it doesn't move much ... until it gaps hugely! This can often catch out traders.

USDJPY is the most technically traded market. It is estimated that ~20% of all USDJPY activity derives from retail traders (far larger than other pairs) and these retail traders are often using chart-based signals. Even if you do not believe in these signals it is important to be aware of them so that you can predict what the crowd will do as these indicators can become a self-fulfilling prophecy.

Because interest rates have been extremely low in JPY for a long time JPY is often traded as a funding currency in carry trades. ZARJPY, TRYJPY, AUDJPY are all popular expressions of this trade. We’ll look at carry trades in more detail, later.


AUDUSD (aussie dollar)

 

Spreads are tight at 1-2 pips and daily range at time of writing was 0.5% or 37 pips.

The Australian dollar belongs to the commodity currency group and traders will often note its correlation to industrial metals like copper. Because of its proximity to China and close trading relationship, AUDUSD also moves in sympathy with Chinese economic data.

Of course AUDUSD is also a relative bet on the Australian currency versus the US currency and domestic developments can also drive price action.


USDCAD (the loonie)

 

The "loonie", named after the bird on Canada's one dollar coin, is typically a rather volatile pair but has been subdued in recent years. It generally costs two pips to trade and has a current daily range of 0.4% or 52 pips.

Again there is a commodity link: Canada is a major oil producer and supplies a large amount of oil to the US. Therefore USDCAD prices will reflect developments in the oil market as well as the relative outlooks for the Canadian and US currencies.


AAPL (Apple)

 

Apple is one of the most traded stocks in the world. Therefore spreads are reasonably tight at 4 cents (0.02%). As with all single stocks price action is volatile with a typical daily range of 1.7% or $3.

As with all stocks, the price action is driven by both macroeconomic and stock-specific factors.

Macroeconomic factors include the overall health of the economy and the future view of interest rates: low interest rates tend to result in higher stock prices whereas anything that made interest rates more likely to hike (increase) would tend to weigh on stock prices.

Stock-specific factors simply represent all the things that analysts believe affect the prospects of a company: its balance sheet, its product pipeline, its leadership and strategy. For example, when Steve Jobs died the stock sold off X%.

Prices tend to be especially volatile around major events such as quarterly earnings releases when the company releases data on its progress and outlook.


BTCUSD (Bitcoin)

 

Spreads of $45 (0.5%) and a daily range of $290 (3.4%). BTCUSD is the poster child for crypto trading and by far the largest crypto asset, accounting for almost a third of all crypto volumes.

In theory Bitcoin is decoupled from traditional markets. Often traders will use technical analysis to trade Bitcoin or perform ‘relative value’ trades versus other crypto assets.

Fundamental traders will consider underlying factors that may increase the demand for Bitcoin – for example it will often rise if there are signs that institutional investors may enter the market and start to build holdings.


ETHUSD (Etherium)

 

Spreads of $2 (0.75%) and a daily range of $13 (4.9%). Etherium is the third largest crypto asset (second if one ignores stablecoins) and is more volatile still than even Bitcoin. 

Etherium is traded in much the same way that Bitcoin is with a mix of technical analysis, relative value and fundamental trades.


GER30 (DAX)

 

The DAX is often treated as a stock equivalent of EURUSD, although it is a lot more volatile and has far greater moves each day. This can provide opportunities but can be dangerous, too!

Spreads from €1 (0.01%) and a daily range of $177 or 1% (around double EURUSD).

Again this is very much a 'risk on' product that tends to do well when market participants feel optimistic and gets sold when they feel gloomy.


Oil (WTI)

 

Betting on the price of oil is all about supply and demand.

Spread of 4 cents (0.07%) and a daily range of 80 cents or 1.5%.

One has to take a view on what the major producers (such as OPEC) are likely to do in terms of supply as well as weather patterns and other factors which affect demand.

Geopolitical forces can also have a large effect on supply: many oil-producing nations are in locations where civil unrest is not unusual and supply shocks can result from military coups and the like.


UK 100 (FTSE)

 

This is a bet on the UK's top 100 blue-chip stocks. Spread of ~£2 (0.03%) and a daily range of £94 or 1.3%.

As with all stock indices it tends to act as a 'risk on' asset and represents a proxy for how investors think the performance and cash flows of major companies listed in the UK will look like in future.


US 500 (S&P)

 

The S&P 500 is, like EURUSD, one of the bellweather market products. Spread of 4 cents (0.01%) and a daily range of $39 or 1.4%.

It is an index that tracks the stocks of 500 blue-chip public US companies across multiple sectors including tech, financials, health care, industrials and others.

When people talk about the US stock market as a whole the S&P is typically the benchmark index they have in mind.


Wall Street (Dow Jones)

 

The Dow Jones Industrial Average is the oldest of the indices. It began life at a price of 100 in February of 1885. Its nominal (i.e. without adjusting for inflation) price at time of writing – some 134 years later – is $24,805 reflecting the long-term gains of the wider stock market.

 

Spreads from $2 (0.01%) and a range of 1.1% or $272 in dollar terms.

 

Relative to the S&P 500, the Dow Jones is much more concentrated and covers only 30 stocks.


US Tech 100 (Nasdaq)

 

The youngest of the indices, the Nasdaq covers 100 stocks so sits in between the DJIA and S&P 500 in terms of coverage breadth.

Spread of $1.7 (0.02%) and the highest daily range of any stock index at 1.6% of $111 in dollar terms.

 

It is considered the most tech-heavy of the indices and because of its concentration in riskier, high growth companies such as the FANGs (Facebook, Apple, Netflix, Google) it tends to be the most volatile.

Next Article