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. The volume of 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.