Best Currency Pairs to Trade in Forex Market

For those drawn to the foreign exchange market, selecting the best currency pairs to trade can be a tough task but the majors will win out in many cases. The volume of paired options, each with its own unique intricacies and volatilities, can mean finding a suitable pair is difficult.

So, before diving into trading the forex market, it's best you get a solid understanding of the best and most popular currency pairs to trade. This article will also provide other helpful tips to help you when trading the forex market.

How Many Forex Pairs Should I Trade?

There is no optimal number of currency pairs you should trade. However, beginners should focus on around one to three pairs and aim to master those pairs before looking to expand their coverage. Even many expert traders have made a substantial return only by trading one pair or asset. For example, the “Flash Crash” trader, Navinder Sarao, primarily traded one market. As a new Forex trader, your primary focus should be on the process, not the profits. Thus, focus on pairing one to two forex pairs in the beginning. The idea is to get yourself familiarised with one or two markets at a time.

If you prefer to cover more than one market, then it is suggested to try to master up to three before further expanding. However, the consensus is that trading above ten markets can make things overwhelming. Even so, it will depend on your trading strategy as a swing trader may find it easier to cover more assets due to the fact they are not constantly watching the market each day. As you gain more experience in Forex trading, you can increase the number of Forex pairs to trade.

What Are the Best Currency Pairs to Trade In Forex Market?

With approximately 180 legal currencies in circulation, there is plenty of scope to buy and sell both real and virtual currencies. As a private forex trader, you can easily trade any of the currency pairs that your broker offers. Many forex brokers will offer over 50 pairs, with some offering as many as 70.

Experienced traders can make money by watching the markets closely and trading a mix of major, minor and exotic pairs, but most new traders will start with the more common pairs.

The four most popular and best currency pairs to trade in the forex market are:

• EUR/USD (Euro/US dollar)
• USD/JPY (US dollar/Japanese yen)
• GBP/USD (British pound/US dollar)
• USD/CHF (US dollar/Swiss franc)

EUR/USD (Euro/US Dollar)

The EURUSD is the shortened term for the euro against the US dollar. The pair is the most traded globally as it represents two giant economies (the US being the biggest in the world). It takes around 30% of the global forex trading volume. The movement of the pair is impacted by factors that impact the valuation of each currency. For example, interest rates and geopolitical going on. Given the liquidity in the pair, price changes can happen rapidly. If you are looking to trade the EURUSD, make sure to learn the technical intricacies of how it moves and keep up to date with the latest news impacting both economies. 

USD/JPY (US Dollar/Japanese Yen)

The USD/JPY, as you would expect, is affected by economic and geopolitical news impacting Japan and the USA. Given that both currencies are considered safe havens, it can, at times, be difficult to assess. In recent times, the JPY has lost some of its safe haven shin, for example. If you consider trading the pair, make sure to look into the Bank of Japan’s monetary policy, and its (lack of) interest rate movements.

GBP/USD (British Pound/US Dollar)

Cable, as it is otherwise known, is another pair that is heavily traded. As a matter of fact, it is considered the second most traded pair globally. As well as economic and geopolitical news impacting its own economy, the pair is also sensitive to news affecting the EUR/USD, given its close economic ties to both. Brexit has been a significant source of volatility and discussion, impacting the pair over the past few years or more. However, as with most pairs, interest rate differentials will be a significant driver of direction.  

USD/CHF (US Dollar/Swiss Franc)

The USD/CHF, nicknamed the “Swissie,” attracts traders due to its liquidity, tight spreads, and safe-haven reputation. The dollar's performance drives the pair, rising with US strength and dipping during economic concerns. But the Swiss franc's safe-haven status creates a strong counterpoint. When global anxieties spike, investors flock to the franc, pushing the pair down. This dynamic interplay between US economic health and global risk appetite makes the USDCHF both stable and potentially volatile, offering opportunities for traders who stay tuned to the ever-shifting market sentiment.

Other very commonly traded currencies include the Australian dollar (AUD) and the Canadian dollar CAD). 

Why Do the Top Currency Pairs Include the USD?

The USD's presence in top forex pairs is partly due to its unrivaled liquidity, stemming from the US's economic might, which makes it easy to trade – a key factor for any trader. 

The USD is also a safe haven during turbulent times, a reputation that is boosted by the stability of the American economy. Furthermore, the US dollar’s historical role as the world's reserve currency has ingrained it into international trade and financial systems, fostering familiarity and trust among traders. 

Overall, the USD's dominance reflects its economic power, stability, and historical precedence, making it the go-to currency for traders.

What are Minor Currency Pairs to Trade in Forex Market?

Minor currency pairs are those that do not include the USD. Within this category, the most commonly traded pairs include the Euro, Japanese yen or British pound. Some common minor forex pairs are:

• EUR/GBP (Euro/British pound)
• EUR/AUD (Euro/Australian dollar)
• GBP/JPY (British pound/Japanese yen)
• GBP/CAD (British pound/Canadian dollar)
• CHF/JPY (Swiss franc/Japanese yen)
• NZD/JPY New Zealand dollar/Japanese yen)

These currencies also experience short-term volatility and high liquidity, making them popular with day traders and other short-term traders. Forex traders based in one of the regions using these currencies understandably often prefer to work with their base currency, and they can make many profitable trades using these so-called minor currencies. The USD is an important and valuable currency that every forex trader tends to be aware of and monitor, but there are certainly profitable trading strategies that can develop using minor currencies as well.

What are Exotic forex Currency Pairs?

Exotic currency pairs include the currency of a developing economy. They tend to be less commonly traded and therefore less commonly available through forex brokers, although major ones will usually offer at least a few exotic pairs. These include:

• AUD/MXN (Australian dollar/Mexican peso)
• GBP/ZAR (British pound/ South African rand)
• NZD/SGD (New Zealand dollar/Singapore dollar)
• JPY/NOK (Japanese yen/Norwegian krone)

Exotic currency pairs are more difficult to trade. They are less commonly available, less liquid and tend to have higher spreads. However, they can still be profitable, particularly in times of high volatility caused by unique world events.

Often, the traders best suited to capitalize on the opportunities to profit from exotic currencies are those based in regions where that currency is the base currency. If you highly tuned in to world events that affect your region, then you may be in place to buy and sell your own currency during periods of market volatility and make a decent profit. Trading exotic currency pairs can certainly be risky, but it can also pay off with bigger gains than you might find with the major currencies.

What affects price movement in forex trading?

Most forex traders will be aware that price movements happen in forex trading for a variety of reasons. You should watch economic releases carefully when trading forex. These are reports published periodically by either government agencies or the private sector. Economic reports, data and predictions can affect prices of currencies in the forex markets with immediate effect.

World events are, of course, also a factor that will have an impact on currencies. Elections, trade agreements and political upheaval are just a few of the factors that keen forex traders watch carefully. Right now, for example, the British pound is likely to experience volatility as Brexit negotiations progress or stall with the uncertainty that has both politicians and citizens on edge. This provides potentially profitable opportunities for the experienced forex trader.

Some issues to keep in mind:

• Technical analysis is key and still has a vital place in forex trading. Fundamentals also play a big part, but most forex traders use a combination of technical indicators to monitor and predict price movement.
• Check those spreads. Most major currency pairs have low spreads, but not always. Trading the USD/GBP, for example, is associated with higher spreads due to the volatility of that particular pair, so wise traders will always keep an eye on this.
• Watch your leverage. Forex brokers typically offer very high leverage. This does not mean that using it all is a good trading strategy. Always use leverage according to a solid, well-thought-out risk management strategy.

Conclusion

The thought of having more than one currency that you know better than any other is enticing but can leave you short-handed in a few scenarios. Instead, a better approach would be to have a handful of pairs that respond to different occurrences in the global financial market.

However, as a new trader, try to focus on 5 to 10 currency pairs. This will give you a few quality opportunities each month without it becoming overwhelming. The more experienced you get, the higher your currency pairs should be.

By maintaining a list of this size, you’ll have more time to study and learn the process of becoming successful. It will also be infinitely more comfortable to put the things you know into practice.