Best Currency Pairs to Trade in Forex Market

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Updated: 09 October 2020

Best Currency Pairs to Trade in Forex Market

This year has seen another influx of new private traders entering the markets, with a strong focus on forex trading. Whether trading is getting easier is still up for debate, but it is certainly getting more accessible. Brokers are tempting new forex traders with high leverage, risk-free demo accounts and in-house, broker-generated training and education.

It is no surprise that many new and experienced CFD traders are focusing on the forex market. It offers plenty of potential; there is a lot of education and research available and the market is active 24 hours a day, five days a week.

Popular trading software such as the MT4 and MT5 provide an efficient, intuitive platform for traders at every level. Leverage on forex trading is usually significantly higher than that available for other trading instruments, which appeals to investors trading in CFDs. So, which currency pairs should forex traders be focusing on?

Keep reading below, and we will show you the following:

  • What Is Forex Currency Trading?
  • How Many Forex Pairs Should You Trade
  • What are the Best Currency Pairs to Trade in Forex Market
  • What are Minor Currency Pairs to Trade in Forex Market
  • What are exotic forex Currency pairs?
  • What affects price movement in forex trading?
  • Some issues to keep in mind

What Is Forex Currency Trading?

The foreign exchange, also known as Forex, or FX, is a global marketplace for exchanging national currencies. Forex trading is about speculation regarding which currencies will rise and which will fall in its simplest form. If you believe that the euro will decrease in value against the dollar, you would sell euros and buy dollars.

Conversely, if the euro is expected to increase in value against the dollar, you would buy euros and sell dollars. You will make money if your prediction is correct. However, Forex trading does not only bring profit to traders out of useful predictions.

Instead, Forex traders need to accumulate and learn trading strategies to make a profit successfully.

How Many Forex Pairs Should I Trade?

For new Forex traders or anyone still struggling, anything over ten pairs is too many. You may be able to stretch that to 12 or even 15, but anything above ten and things can become overwhelming.

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.

And as you grow mature in Forex trading with more experiences, you can increase the number of Forex pairs to trade.
Now, let us take a look at the list of currency pairs available in the Forex market.

What are the Best Currency Pairs to Trade in Forex Market?

Best Currency Pairs to Trade
With approximately 180 legal currencies in circulation, not to mention over 1,500 listed cryptocurrencies, there is plenty of scope to buy and sell both real and virtual currencies. Cryptocurrency trading is a growing, popular and specialised market, but most forex traders still focus on real-world 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)

It is one of the significant trading pairs as it is traded globally due to its liquidity. It is popular among advanced traders, and it is not recommendable for beginners. It is not easy to predict its movements due to its volatility. The changes in a day can be many and happen very fast. So it is not suitable for people who are just starting to trade. It requires a lot of technical analysis and fundamental knowledge to trade.

USD/JPY (US dollar/Japanese Yen)

This is the most challenging pair to predict. It is affected by news in Japan and the USA. The pair is not comfortable to trade for beginners since you will need to know its underlying dynamics and movements. However, if you consider using it, it would be best if you used Swing trading. Furthermore, the majority of the information from financial institutions and banks is inaccurate.

GBP/USD (British Pound/US dollar)

This pair is highly sensitive to news affecting the EUR/USD and political prevailing in the UK. Many people prefer it because when there is a breakout showing resistance and potentially goes against a trader, it triggers stop losses. It is moderately severe for a beginner to trade with, but you will need to take precautions. It works best if you go for long term trades. Volatility is predictable, but it would be best for you if you worked closely with American analysts.

USD/CHF (US Dollar/Swiss Franc)

It is a unique one because it flows in the opposite direction from the EUR/USD. Compared to the EUR/USD and USD/JPY, it has the best flow. Additionally, it is not affected by news that so many movements do not occur frequently. It is useful for a beginner because you can use it to determine the trend of other pairs. It is ideal for people who are new to the game because it is predictable and less volatile.

Other very commonly traded currencies include the Australian dollar (AUD) and the Canadian dollar CAD). The most commonly traded pair (EUR/USD) trades significantly more than any other pair, frequently experiencing around 50% more global volume trading than USD/JPY and GBP/USD combined.

These major pairs are generally active enough that they appeal to day traders and other short-term traders. They are volatile, with price fluctuations happening constantly, which presents the opportunity for both gains and losses daily.

These pairs tend to have lower spreads and therefore more favourable trading conditions, but that does not mean that they suit everyone.

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 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?

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.

Further Reading

FAQs

Depends. If you are an experienced trader, you can trade more than five pairs at once. If you are a new trader, two pairs will be maximum to avoid overwhelming your trading process.

Top 5 Most Traded Currency Pairs are:

  • EUR/USD
  • USD/JPY
  • GBP/USD
  • AUD/USD
  • USD/CAD

Major currency pairs are most profitable in Forex., Top traded currency pairs include the U.S. dollar and the currency of one of the most significant and economically developed countries such as EUR/USD, USD/JPY, GBP/USD, AUD/USD, NZD/USD, USD/CHF and USD/CAD.

Risk per trade should always be a small percentage of your total capital. A good starting percentage could be 2% of your available trading capital.

The Trading week begins at 5 p.m. EST on Sunday and runs until 5 p.m. on Friday. Not all hours of the day are equally good for trading. The best time to trade is when the market is most active.