Which currency pairs to trade can be a tricky question. Firstly because it depends on many variables. We will name a few:
- Time traded volatility
In this article, we will go through some of the pairs that we feel are the best. By the best, we think about maximizing profits and making the most games on a trading day.
In you case you haven’t read the article on How to Trade Forex, we suggest you read it before.
Types of Currency Pairs to Trade
First, we have to know that forex pairs fit into different groups.
- Major forex pairs
- Minor forex pairs
- Exotic forex pairs
As you may conclude, the division lies in the amount they trade. However, the split includes their economy and volatility of each.
The major forex pairs are the most traded currency pairs in the world. These pairs have a lot of volatility and contain two of the most used currencies.
Therefore, all major currency pairs always contain the dollar. It is because the dollar is the most traded currency in the world. As the world’s reserve currency, gold is backing the dollar. For this reason, other countries use to purchase the dollar instead of gold.
Most international transactions feature the US dollar. Therefore, it is easy to conclude that USD and major pairs have a lot of volatility. One famous saying, “the dollar is king,” explains it all.
The minor forex pairs are known as cross currency pairs. These are less traded pairs, but they do contain the other major currencies. However, they do not include the US dollar.
You will also find that these pairs also have high volatility and have the potential for significant moves. It is because most of these pairs contain the second most traded currency in the world – Euro. For that reason, they also offer small spreads, although not as low as US dollar pairs.
Exotic forex pairs usually contain one major and one less-traded currency. Sometimes, it is an emerging market currency. You can find some of these examples above. For example, USD/ZAR includes USD. However, this pair also consists of the emerging market currency, such as the South African Rand (ZAR).
These pairs usually have very high spreads. As you may know, a high spread means it is generally harder to gain profits on them.
What are the Best Currency Pairs to Trade?
By knowing this, we can approach the question of what is the best currency pair to trade. Like we mentioned above, this can depend on a few things, such as strategy, time, spread, and availability.
However, we do regard the major and minor currency pairs as the best pairs to trade. It is because of a couple of reasons.
Firstly they are readily available to trade. Most brokers allow trading of the majority of them on their accounts. Furthermore, the spreads will be relatively small, which allows for lower transaction costs. In this case, it is more convenient access to the market.
Moreover, they also provide the most volatility. It is because they are some of the most traded pairs in the world. Therefore, there would be the potential for substantial gains throughout the day, enabling massive profits.
If focusing only on one type of currency pair, it would be one of the majors. Those that include USD have the following advantages:
- Guaranteed volatility
- Massive potential for significant pip gains
- Spreads are smaller than for minor currency
On the other hand, exotic currency pairs can potentially offer some substantial gains through big spikes in price. As this happens only occasionally, they are harder to predict.
However, the spread is usually vast in these pairs. Consequently, there has to be a massive move before you can even cover the cost of getting into the position.
Therefore, our advice would be on the pairs with the USD (namely the EURUSD and the USDJPY). In case you are looking for big moves throughout the day, these pairs are the best choice. It is because they have high liquidity and low spreads.
For this reason, it is wise to build your strategy and your confidence with these pairs. Afterward, focus on others.
Good luck, guys!
Now that you already know the best currency pairs to trade, you should read these articles: