What are the best currency pairs to trade?

What are the best currency pairs to trade?

Name a market that never closes, has the largest volume of the world's business with people from all countries of the world participating every day. Yes, you guessed it - the foreign exchange market. The market has arisen from the need for a system to facilitate the exchange of different currencies around the world in order to trade. It is the premier financial market in the world which reflects the financial dynamics of world trade quite clearly. All trade here is a trade-off between the pairs of currencies from two different countries.

The famous phrase 'money never sleeps' - coined by the well known Hollywood movie 'Wall Street' - sums up the foreign currency exchange market perfectly. No matter what time of day, the Forex market will stay open and close in order to facilitate uninterrupted currency trading.

When you begin to trade Forex online, you may find yourself overwhelmed and confused by the sheer number of available currency pairs inside your MetaTrader 4 trading terminal. So you may ask, what are the best currency pairs to trade? The answer isn't so straightforward as it varies with each trader. Instead, you need to take the time to analyse different pairs against your own strategy to determine which are the best Forex pairs to trade on your own account. This article will briefly describe what currency pairs are and assist you in identifying the best Forex pairs to trade on your account. It will also explain what Forex majors are and whether they will work for you.

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What are currency pairs?

Forex trading - or foreign exchange trading - is all about buying and selling currencies in pairs. For the buying and selling of currencies, you need to have information about how much the currencies in the pair are worth in terms of the other. This relationship is what defines a currency pair. A currency pair quotes two currency abbreviations followed by the value of the base currency based on the currency counter.

There is an international code that specifies the setup of currency pairs. For example, a quote as EUR/USD 1.23 means that one euro is worth $1.23. Here, the base currency is the euro (EUR) and the counter currency is the US dollar. Thus, each currency pair is listed in currency markets worldwide.

Are majors really the best currency pairs to trade?

Not surprisingly the most dominant and strongest currency, as well as the most widely traded, is the US dollar. The reason for this is the size of the US economy which makes it the world's largest economy. The US dollar is the currency which is the preferred reference in most currency exchange transactions worldwide. It is the dominant reserve currency of the world. The following are not necessarily the best Forex pairs to trade, but they are the ones that have high liquidity and occupy the most foreign exchange transactions:

  • EUR/USD (Euro - US dollar)
  • USD/JPY (US dollar - yen)
  • GBP/USD (GB pound - US dollar)
  • AUD/USD (Australian dollar - US dollar)
  • USD/CHF (US dollar - Swiss franc)
  • USD/CAD (US dollar - Canadian dollar)

The values of these major currencies keep fluctuating according to each other, as trade volumes between the two countries change every minute. These pairs are naturally associated with countries that have financial power and the countries with a high volume of trade conducted worldwide. Generally, such pairs are the most volatile ones, meaning that the price fluctuations inside of the day can be the largest. Does this mean that they are the best? Not necessarily, as traders can either lose or make money on the fluctuations. The aforementioned pairs do have the best trading conditions, as the spreads tend to be lower, yet it doesn't mean that the majors are the best Forex trading pairs.

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What is the best currency pair to trade then?

With over 200 countries in the world, you can find a handful number of currency pairs to engage with trading. However, all these currency pairs do not have the potential to deliver the best results to traders. What is the best currency pair to trade? What do most traders trade? What currency pair is worth trading and why? Keep on reading this article to figure out answers for above questions.

Before analysing the best currency trading pairs, it is better to enhance our knowledge on the most popular currencies that can be found in the world of Forex trading. They include:

  • US dollar (USD)
  • Euro (EUR)
  • Australian dollar (AUD)
  • Swiss franc (CHF)
  • Canadian dollar (CAD)
  • Japanese yen (JPY)
  • British pound (GBP)

Out of these currencies, you can find a few popular currency pairs. If you want to achieve success in Forex trading, you need to have a better understanding about the currency pair that you trade. If you select any of the currency pairs we're going to discuss below, you will make trading simpler for yourself as lots of expert analytical advice and data is available on them.

Analysis of the best currency pairs to trade

Let's take a detailed look at the currency pairs below:

USD/EUR – This can be considered as the most popular currency pair. In addition, it has the lowest spread among modern world Forex brokers. This currency pair is associated with a basic technical analysis. The best thing about this currency pair is that it is not too volatile. If you are not in a position to take any risk, you can think of selecting this as your best Forex pair to trade, without it causing you too much doubt in your mind. You can also find a lot of information about this currency pair, which can help prevent you from making rookie mistakes.

USD/GBP – The profitable pips and possible large jumps have contributed a lot towards the popularity of this currency pair. However, you need to keep in mind that higher profits come along with a greater risk. This is a currency pair that can be grouped into the volatile category. However, many traders prefer to select this as their best currency pair to trade since they can find plenty of market analysis information.

USD/JPY – This is another loved currency pair that can be seen in the world of Forex trading. It is associated with low spreads and you can usually follow a smooth trend when compared to other currency pairs. It also has the potential to deliver exciting profitable opportunities for traders.

All the major currency pairs that can be found in the modern world are equipped with tight spreads. However, this fact is not applicable for USD/GBP currency pair because of its volatility. It is always better to stay away from the currency pairs that have high spreads. The recommended spread by the trading experts is 0-3 pips. When it gets over 6 pips, the trading pair may become too expensive, which can lead you towards greater losses. Still, it doesn't mean you should totally avoid anything that has high spreads.

Special pairs

What is important to note is that the best pair is the one you are most knowledgeable about. It can be extremely useful for you to trade the currency from your own country, if it is not included in the majors of course. This is only true if your local currency has some nice volatility too. In general, knowing your country's political and economical issues results in additional knowledge which you can base your trades on. It is certainly recommended to consider trading the pairs that contain your local currency. In most cases, your local currency pair will be quoted against USD, so you would need to stay informed about this currency too.

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Article conclusion

The dynamics of foreign exchange trading is an interesting subject to study, since it can provide a boost to the world economy, along with the rise and fall of its financial fortunes. As globalisation becomes a big part for most countries around the world, the fate of these pairs is closely interconnected. Make sure you study the foreign exchange market before making an investment in this market. There are many Forex pairs available for trading and it is highly recommended to try trading most of them before you choose one to stick with. As Forex trading is risky, try it first on a demo account with a virtual balance.

Identifying the best currency pair to trade is not easy. The best way to accomplish this is through hands-on experience. Simply open a demo account and start trading, while reading technical analytics and analysis of fundamental events. Remember, practice makes it perfect.

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