What are the Best Currency Pairs to Trade?

Currency pairs are a key element of Forex trading, but they can be confusing. This expert guide explores the biggest currency pairs and why they matter.

The Forex (Foreign Exchange) market started to fulfil the need for different global currencies to be exchanged reliably for trade. It boasts the biggest volume of businesses from all over the world and traders from diverse nations take part in it daily. As a result, it serves as the leading financial market and reflects changing global financial activities.

All trades on the Forex market are trade offs between two countries’ currency pairs. There’s a reason the villainous Gordon Gecko said “money never sleeps” in the immortal Wall Street: the Forex market operates throughout the working week, running 24 hours on trading days consistently.

If you’re thinking of trying Forex trading online, it’s easy to feel daunted by the huge amount of currency pairs presented on trading platforms (such as MetaTrader 4 or 5). You’ll probably wonder which currency pairs should be traded and why. The best option varies from one trader to another, and you should think carefully about this process before investing cash.

Analyse the performance of various pairs in relation to your personal strategy to identify the smartest choice for your trading. To help you do this, we’ve created the following guide to currency pairs, covering all the key information you need to know.

Currency Pairs Defined

On the Forex market, trading revolves around purchasing and selling pairs of currencies. You’ll have to gather data on the currencies’ value to make the most of Forex trading, as the relationship between the two is pivotal. A currency pair features the relevant abbreviations (USD, EUR, etc.) and the base currency’s value.

Furthermore, there’s usually an international code which denotes the pairs’ set-up. So, USDCAD 1.40 would mean a US dollar equates to $1.40 CAD. In this example, USD is the base currency while CAD is the counter currency.

Currency pairs do become simpler the more you study them and explore Forex trading activities.

Understanding How Major Currencies Work in Currency Pairs

As you might have guessed, USD is the world’s strongest and most commonly-traded currency. Why? Because the United States economy is so vast, even compared to other powerful countries worldwide.

There are certain currency pairs which have high liquidity and occur in the majority of Forex transactions. These include USD (US Dollar) and JPY (Japanese Yen), USD and CHF (Swiss Franc), USD and CAD (Canadian Dollar), and GBP (Great British Pound) and USD.

These massive currencies have fluctuating values because trade volumes between the respective nations change frequently. As a result, the currency pairs mentioned above (and others) are typically associated with those countries enjoying more monetary power and high trade volumes. These pairs tend to be highly volatile too, which means price fluctuations that take place throughout the day may be the biggest.

Still, are they the best currency pairs? That might not be the case. Traders could either make money on the fluctuations or lose it. So, while the major currency pairs can experience the most impressive trading conditions with lower spreads, they’re not guaranteed to be the best pairs for every trade.

How Do I Know Which is the Right Currency Pair for Trading?

There are hundreds of nations, which means it’s easy enough to pick a small number of currency pairs to start trading with. But if you don’t choose carefully, you could struggle to achieve the type of results you’re looking for. It’s best to do a little research first to see what most people trade and which currency pairs are valuable.

As mentioned above, the major currencies on the Forex market include USD, AUD (Australian Dollar), CAD, and a few others. There are a number of popular pairs amongst the majors, but it’s best to cultivate a deep understanding of them if you want to make the most of your Forex trading.

Fortunately, there’s a wealth of analytical information on the major currencies and pairs out there, including ours below.

Exploring the best trading currencies

USD/GBP

This is one of the most popular currency pairs due to the number of valuable pips (change in value) it has experienced, but remember: bigger profits tend to be linked to higher risks. As a result, USD/GBP can be considered volatile, with a lot of traders choosing this pair as their favourite for trading. Another reason for this is the amount of analysis they can find online.

USD/EUR

Another of the most popular Forex currency pairs, this boasts the smallest spread and lends itself to fairly straightforward analysis. It’s not particularly volatile either, so if you don’t feel you’re in a good place to risk funds, USD/EUR could work well for you. Again, there’s a huge amount of information to read about it online too.

USD/JPY

USD/JPY serves as another major currency pair in Forex trading, with low spreads. This has potential to bring traders some exciting opportunities and, hopefully, valuable profits. It’s definitely one to watch.

The biggest currency pairs in Forex trading today bring tight spreads, except for USD/GBP due to its volatility. You might prefer to avoid any currency pairs associated with high spreads, as experts recommend a spread of between zero to three pips. Anything over six pips means a currency pair could end up bringing high expense and create bigger losses.

But don’t think that means you have to avoid all pairs with high spreads forever. Just be sure that you practice sensible trading and exercise effective risk management to mitigate dangers.

What are Special Currency Pairs?

In most cases, the best currency pairs for traders are those which you have deep knowledge of, which may mean you prefer to trade your home country’s currency (especially to start with). This assumes your nation’s currency isn’t actually included in the list of major pairs, though.

Traditionally, if you’re familiar with your country’s current economical and political status, you can make informed trading choices. Forex calendars are available providing details to help traders understand forecasts or predictions related to market activities.

Think about trading with special or ‘exotic’ currency pairs, which contain a currency that’s traded thinly and are less liquid, as your own local currency may be. And as its quote would be against the US Dollar, it could pay off to stay up to date on that too.

Final Thoughts

Forex trading is a fascinating area, as experienced traders are sure to agree. It has the potential to increase the global economy, and with globalisation such a major matter for nations worldwide, much attention is paid to currency pairs.

You may want to trade with several different currency pairs before you decide to focus on one only. Forex trading can bring risks, so don’t be afraid to experiment with a demo account first, using a virtual cash balance. This will help you identify the best currency pair and get a feel for the market.

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