Which are the best Forex currency pairs to trade?

Currency trading is the most popular activity in the financial world. Mainly thanks to the fact that the barriers for entering the business are almost non-existent. There is a great variety of brokers to choose from. Opening a live trading account takes less than a day in most cases. The minimum initial deposits required starts from 10 USD, 50 USD, 100 USD and in some cases 1 USD. Brokers provide traders with user-friendly web pages and tailored customer services in multiple languages to draw customers. As a result, many traders are joining the game without having a clear understanding of how to trade or which assets to choose for trading.

How does currency trading differ from trading other markets?

Currency trading is unlike any other market. Firstly, the barriers for entry are law. You need much less capital to start trading pairs than you would need to trade physical stocks or metals. Forex is the most liquid market making the spreads tight. Currency pairs move very differently than stocks. Stock prices can go from 0 to potentially infinity. In Forex, one currency is valued in relation to another. As a result currency pair prices are moving in cycles. When choosing the best currency pair to trade, selecting both: base and quote currencies carefully is vitally important.

What kind of currency pairs are there available to trade?

Forex trading is a leveraged activity, meaning traders are using borrowed funds to open trading orders. In exchange for landing the money and providing its services, brokers are charging traders with spread markups and commissions. In addition, FX traders pay market spreads per trade. Spread is the difference between the bid and the ask price. When the charges are added up, traders can find themselves paying large sums of money from their balance on just fees. However, it is possible to decrease the fees on market spreads by choosing the right currency pairs.

In order to be able to make the best choice, we should explain what kind of currency pairs are there. Generally currency pairs are grouped in four categories.

Majors

Major currencies that are paired with USD are called Major pairs and Majors are typically backed by strong economies. Thanks to the fact that the Majors are backed by developed economies, central banks and governments, they are the most attractive for investors. Which also translates into high liquidity and tight spreads. The list of Major currency pairs includes:

• EUR/USD – Euro vs US Dollar
• GBP/USD – British Pound vs US Dollar
• USD/CHF – US Dollar vs Swiss Franc
• USD/JPY – US Dollar vs Japanese Yen
• USD/CAD – US Dollar vs Canadian Dollar
• AUD/USD – Australian Dollar vs US Dollar
• NZD/USD – New Zealand Dollar vs US Dollar

Minors and Cross currencies

Minors and Cross currencies are created when a Major currency pair is paired with another currency. Usually USD is missing in these currency pairs. Minors are less liquid than Majors. However, they are much more liquid than Exotics.
Below you can see the Popular examples of Minors and Cross currency pairs:

• EUR/GBP – Euro vs British Pound
• GBP/JPY – British Pound vs Japanese Yen
• GBP/CHF – British Pound vs Swiss Franc
• GBP/AUD – British Pound vs Australian Dollar
• EUR/JPY – Euro vs Japanese Yen
• AUD/CAD – Australian Dollar vs Canadian Dollar

Exotics

Exotic currencies are coming from developing countries. As a result, the currencies are backed by weak economies and are less traded. Less investors are interested in purchasing Exotic currencies, as a result, liquidity is decreased and volatility increased. In other words, due to the fact that there are less buyers and sellers, less bid and ask prices, prices are making larger, sharper moves and the spreads are larger. Most novice traders avoid Exotic pairs due to these factors. In addition, most experienced traders are avoiding them as well. Trading Exotic pairs effectively requires a deep understanding of certain assets.

You can see some of the popular Exotic pairs bellow:

• USD/HKD – US Dollar vs Hong Kong Dollar
• USD/SGD – US Dollar vs Singapore Dollar
• USD/ZAR – US Dollar vs South African Rand
• USD/THB – US Dollar vs Thai Baht
• USD/MXN – US Dollar vs Mexican Peso
• USD/DKK – US Dollar vs Danish Krone
• USD/SEK – US Dollar vs Swedish Krona
• USD/NOK – US Dollar vs Norwegian Krone
• USD/INR – US Dollar vs Indian Rupee
• GBP/INR – British Pound vs Indian Rupee
• USD/TRY – US Dollar vs Turkish Lira

Which currency pairs are the most volatile?

Currency rate volatility is usually measured to give traders an idea on how much a currency pair can change in a certain period of time. Highly volatile currencies make sharp moves and can benefit traders when they are on the right side of the trade. On the downside, if a trade goes against your prediction in a highly volatile pair, the chances of hitting the Stop Loss increases. As a result, traders are usually placing larger Stop Losses in terms of pips and larger Take Profit targets.

These are some of the most volatile currency pairs in the world:

• AUD/JPY – Australian Dollar vs Japanese Yen
• NZD/JPY – New Zealand Dollar vs Japanese Yen
• AUD/USD – Australian Dollar vs US Dollar
• CAD/JPY – Canadian Dollar vs Japanese Yen
• AUD/GBP – Australian Dollar vs British Pound

Whether to trade these pairs or not is completely up to you. However, it’s important to prepare accordingly and expect volatile moves.

Which currency pairs are the most stable?

What do we mean when we stay stable in Forex? The term refers to currency pairs that are least volatile. Less volatile currency pairs are less risky and attract a large amount of investors. Usually stable currency pairs are the most liquid. When trading stable currencies, you are more or less guaranteed that you won’t lose half of your position within your first trade. However, keep in mind that volatility can be wild during important economic events such as central bank decisions and political turmoil.

The list of top 10 most stable currency pairs consist of:

• EUR/USD – Euro vs US Dollar
• GBP/USD – British Pound vs US Dollar
• USD/JPY – US Dollar vs Japanese Yen
• USD/CAD – US Dollar vs Canadian Dollar
• AUD/USD – Australian Dollar vs US Dollar
• USD/CNY – US Dollar vs Chinese Yuan
• USD/CHF – US Dollar vs Swiss Franc
• GBP/JPY – British Pound vs Japanese Yen
• EUR/CHF – Euro vs Swiss Franc
• NZD/USD – New Zealand Dollar vs US Dollar

How to select the best currency pairs to add to your watchlist?

Now that we’ve discussed many different types of currency pairs, it is time to choose the ones that will end up in our watchlists. When selecting a currency pair, there are a number of things to consider. Let’s discuss these important factors one by one.

Predictability of currencies

When trading, you want to have access to the full range of data. Information plays a major role in predicting the future prices. Even purely technical traders keep an eye on an economic calendar to make sure there’s little room for surprises once they’re in a position. Generally all Major currencies and some Minor ones are covered in this regard. Central banks are very transparent and update the information weekly. What’s more, it’s easier to collect political information on Major currencies since they’re representing developed nations and there is high quality content available on the internet.

Price Stability

Another important point to consider is volatility. As already mentioned, volatile pairs carry higher risks but can increase your profits better at the same time. In finance, it’s a well known fact that higher risk equals higher rewards and vice versa. If you are willing to decrease the risks, you can trade smaller positions and use larger price targets, or simply trade the stable currencies we’ve discussed above.

Liquidity

High liquidity is vitally important for successful trading. Good liquidity can reduce the distance between the bid and the ask price and give you the best spreads. The less you have to pay for opening and closing trading positions the better. As already mentioned, Major pairs are the most liquid thanks to the fact that these currencies are backed by strong economies and most investors have high trust in them.

Diversification and Correlation

One more important topic to consider when choosing the best Forex pairs for trading is how correlated they are with one another. Many investors are trading single assets, while the vast majority trades various instruments at the same time. When diversifying your risks and putting your golden eggs to different baskets, it’s important to learn that some assets are highly correlated. For instance, the Euro and the British Pound are two very highly correlated assets. And no wonder, the UK’s and Europe’s economies are extremely dependent on each other. Despite Brexit, they have strong ties in terms of commerce, tourism, policies and more. What’s more, some currency prices such as Canadian Dollar, Australian Dollar and New Zealand Dollar are highly correlated with certain commodity prices. The reason being the fact that certain economies are dependent on selling Oil, precious metals and other commodities.

In most categories, we can safely say that Major currency pairs such as: EUR/USD, GBP/USD, USD/CHF, USD/JPY, USD/CAD, AUD/USD and NZD/USD can be a great addition to your watchlist. These pairs are highly liquid and you can find a vast amount of information on their native economies. You can also try the Minor and Cross pairs as well.

The main takeaways

To sum everything up, you can trade the currency pairs from three major categories: Majors, Minors and Exotics. Majors are backed by strong economies and traded by most investors. It is recommended that you keep the Major pairs in your watchlist as there’s a vast amount of information available on the internet for conducting a complete analysis, the spreads are the tightest and they’re the most stable. In order to trade the Minor and Exotic pairs, a good understanding of certain assets is needed. Exotic currencies are from developing countries and are characterized by low liquidity, high volatility, and less information availability. Trading highly volatile currency pairs can increase your profits as well as your losses. Therefore, it’s best to approach them with caution.

FAQs on the best pairs to trade in Forex

Which currency pair is most profitable in forex?

The most profitable pairs are the ones with the smallest spreads and highly volatile moves. Major currencies are the most liquid and as a result, they are providing traders with tight spreads. These currency pairs are the most volatile Major and Minor currencies in the Forex market: AUD/JPY, NZD/JPY, AUD/USD, CAD/JPY, AUD/GBP. High volatility, in other words sharply moving markets make it possible for traders to gain the highest possible returns per trade. However, keep in mind that it can lead to higher losses as well.

What are the easiest pairs to trade forex?

The easiest pairs to trade are the ones that are highly liquid. Meaning, there are a lot of people and traders exchanging these currencies at any given moment. When you have a large number of buyers and sellers, it’s easy to find the best price. Euro vs USD is the most liquid pair. As a result, the difference between the bid and the ask price is minimal. In some occasions brokers that have multiple liquidity providers manage to offer Euro vs USD with as little as 0 market spreads.

Which forex pair is most stable?

When we are talking about stable currencies, we mean the currencies that are less volatile. EUR/USD has been considered the most stable currency pair throughout history. Both currencies are backed by strong economies and advanced central banks. However, economic turmoils, energy crises and other factors can make the pair highly volatile from time to time. In addition, there are other stable currency pairs worth mentioning, such as GBP/USD, USD/JPY, USD/CAD, AUD/USD, USD/CNY, USD/CHF, GBP/JPY, EUR/CHF and NZD/USD.