22 April 2024 - 14min Read

Forex trading

Best pairs to trade in forex

Name a market that is open 24 hours, five days a week, has the highest amount of commercial interest from around the world, in which individuals and businesses from every nation participate every day. Yes, you guessed it: the Foreign Exchange (Forex) Market.

Many traders may have pondered and asked themselves, "Which currency pair is the best for forex trading"? The answer is not straightforward since it depends on the trader. So, to help you decide, take time to study the behaviour of various forex pairs and test their performance using your personal trading techniques. This can help you decide which currencies suit your trading style.

This article will provide a basic overview of currency pairs and the best forex pairs to trade. It will also clarify some common questions about forex  as an asset class.

TABLE OF CONTENTS

Key takeaways

  • The Forex market is the most popular trading market with online traders.
  • Forex market is open 24 hours, five days a week.
  • Hundreds of currency pairs are available to trade, each with different characteristics.
  • Whether you’re a day trader, swing trader, or trend trader, you will find an abundance of trading opportunities in forex markets.
  • Forex pairs are often divided into three categories: major, minor, and exotic pairs.
  • Major economic releases, such as a change in interest rates,  the release of employment data, and inflation metrics, along with geopolitical events, can all influence the forex market.

Marc Aucamp

Content Writer

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What are forex pairs?

A forex pair is the price of one currency in relation to another. A forex/currency pair has the base currency and the quote currency. The base currency is the first in a pair, and it is the currency the trader expects will increase or decrease in value against the quoted currency. 

For example, selling Euro vs the US dollar (EURUSD) indicates that you believe the Euro will decline against the USD dollar.

Currency pairs are typically classified into three types:

Majors

Forex majors are traded much more than other pairs. They include currencies from the world's biggest and most stable economies, such as the Euro (Eurozone), GBP (United Kingdom), USD (United States of America), and JPY (Japan). Because of their high liquidity and low spreads, major pairs are popular among both novice and experienced traders.

Minors

Minor forex pairs, or crosses, can include frequently traded currencies such as the Euro, British pound, Japanese yen, and  US dollar. But these currencies are paired with those of smaller economies, such as South Africa and Hong Kong. Other examples include the Indian rupee against the Japanese yen or the British pound against the Singapore dollar. Minors are usually less popular with traders since they are less liquid and may have wide spreads.

Exotics

Exotics connect a major currency, such as the US dollar or Euro, with a developing country's currency, such as Brazil (Brazilian Real) or Turkey (Turkish Lira). Because these pairs are less frequently traded than majors or minors, they tend to be illiquid, can often be extremely volatile and therefore have wider spreads.

What are the best forex pairs to trade?

We have some suggestions to assist you in determining which forex pairs will be suitable for your trading preferences.

According to our research, the most popular forex pairs are as follows:

EURUSD

The EURUSD is the most traded currency pair on the forex market. This instrument is popular because it represents the world's two largest economic blocs: the Eurozone and the United States.

The EURUSD currency pair is the most liquid thanks to the huge number of trades executed each day. This means that the spread, that is, the difference between the selling and buying prices, is narrow, and so it is cheap to trade.  Traders want liquidity and narrow spreads because they allow them to execute massive deals with minimal influence on the market price.

The EURUSD exchange rate is affected by many variables, including interest rates set by the European Central Bank (ECB) and the US Federal Reserve (Fed), unemployment data, inflation data, and numerous geopolitical factors. 

USDJPY

The USDJPY is the symbol for the US dollar and the Japanese yen, also known as the 'Gopher.' It is the second-most-traded currency pair.

The USDJPY, like EURUSD, is noted for its deep liquidity. The yen is Asia's most actively traded currency, while the US dollar is the world's most widely traded currency.

Like the Fed and ECB, the Bank of Japan (BoJ) sets interest rates for the Japanese economy, impacting the yen's value against the US dollar.

GBPUSD

GBPUSD, or 'cable,' is a measure of the relative strength of the British and American economies. If the UK economy grows more rapidly relative to the US, the pound would be expected to gain value against the US dollar and vice versa. The quotation price of GBPUSD is also influenced by the respective interest rates set by the Bank of England (BoE) and the Federal Reserve (Fed).

AUDUSD

The AUDUSD represents the exchange rate between the Australian and US dollar and is also known as the 'Aussie.' The value of the Australian dollar is strongly linked to the value of its exports, such as iron ore and coal, accounting for a significant amount of the country's GDP.

A change in those commodity prices on the global market would almost certainly result in a change in the value of the Australian dollar.

The AUDUSD exchange rate is also influenced by interest rate changes from the Reserve Bank of Australia (RBA) and the US Federal Reserve. It can also be affected by gold prices, as Australia is a major producer of gold.  

USDCAD

The USDCAD, or 'loonie,' is the symbol representing the US dollar when measured against the Canadian dollar. The Canadian dollar, the Australian dollar, and the New Zealand dollar are  ‘commodity currencies.’ This is because these countries' economies depend strongly on producing certain commodities. For the Canadian dollar, the global oil price, along with natural resources such as wheat and timber, all help to influence the price of the currency, whether measured against the US dollar or when paired with other currencies.

Because oil is valued in US dollars on global markets, Canada may earn significant US dollars from oil exports. 

As a result, while trading the USDCAD, you should keep an eye on the prices of both Brent and WTI crude oil and plan your trades accordingly.

USDCHF

The USDCHF is the symbol representing the US dollar against the Swiss franc, often referred to as the 'Swissie.' The USDCHF is of interest to many traders as the Swiss banking system has traditionally served as a safe haven for investors.

As a consequence, investors often seek out the Swiss franc as a safe haven during periods of increased market volatility. During periods of high volatility, the price of this pair is likely to fall as the CHF increases in value versus the USD. But it is fair to say that the Swiss franc has lost some of its attractiveness for traders due to interventions from the Swiss National Bank and also ongoing difficulties with some of Switzerland’s major banks themselves. 

EURGBP

The EURGBP symbol represents the Euro when measured against the British Pound. It is regarded by some traders as one of the most difficult pairs when it comes to forecasting price movements. 

You should keep an eye on announcements from the European Central Bank (ECB) and the Bank of England (BoE), as these can affect the exchange rate. The EURGBP was traded extensively before and in the immediate aftermath of the referendum over the UK’s membership in the European Union. But these days it is most popular with range traders. 

Which forex pairs are best for swing trading?

Any forex pair may provide swing trading opportunities over time. The ideal swing trading forex pairs should have sufficient liquidity and enough volatility to create price changes that lead to swing trading opportunities. Furthermore, the volatility must cause price changes over a short time span, preferably between days and weeks.

The best environment for swing traders is when a market gets stuck in a range, with obvious areas of resistance and support. A range can often develop once a trend has run out of steam, and a period of consolidation takes place.

Although the volatility isn't ideal, the EURUSD forex pair's high liquidity makes it perfect for swing trading, particularly for individuals looking for basic forex pairs to wet their feet.

The NZDUSD is an important forex pair and its price swings are often linked to commodity market activity.  New Zealand is one of the world’s largest exporters of agricultural produce. Adding this feature to the currency pair's high liquidity makes it an attractive pair for swing trading opportunities.

The EURJPY currency pair is also very liquid. Economic developments in Europe or Japan can directly influence this currency pair, providing opportunities for swing traders to benefit.

The USDCAD tends to move in lockstep with the oil market, which can help to identify if the pair is stuck in a range and therefore provides good opportunities for swing traders. 

The AUD/USD is heavily affected by Australia's exports of precious metals and other commodities. Because of its strong economic ties with China, the AUD/USD pair is also suitable for taking advantage of both  Asian and American market moves. This instrument also offers a high level of liquidity, which will appeal to swing traders.

When you initially begin swing trading forex, it is critical to keep an eye on several currency pairs in order to find the clearest opportunities. Swing trading works best when you keep your options open and use technical analysis to identify significant areas of support and resistance.

Which currency pairs are best for scalping?

Scalping is an aggressive trading style in which your primary goal is to benefit from minor price changes. Scalping trades are typically only held for a few seconds to a few minutes, but understanding which currency pairs to scalp is crucial.

The forex majors are the finest forex pairs for scalping as they are the most widely traded and have the biggest trading volumes. A currency pair's spread is another factor when considering it for scalping. With a narrow spread, it will be simpler to enter a trade at the price you desire, and since scalping depends on small price fluctuations, it is critical that you get filled at the price you want with very little to no slippage. 

The best forex majors to scalp are the EURUSD, GBPUSD, and USDJPY, as they trade in large volume and so tend to have the highest liquidity.

Can you position trade forex pairs?

While many traders are drawn to the forex market for its 24-hour trading, others like it because of its long-term trends and reactions to major support and resistance levels. Position traders often keep positions open for weeks, months, or even years. Furthermore, position trading allows a trader to make a  long-term investment as they are not required to "babysit" their trades.

Which forex pairs are the best to trade at night?

For this section, we will assume that you’re based in the Northern Hemisphere. 

For those seeking more volatility, Asian crosses that do not involve USD, such as the AUD/NZD, AUD/JPY, or NZD/JPY, are good overnight trades. Their main trading hours are during the UK night session, and this is when their trading volumes are highest and their liquidity deepest. Typically, these currency pairings move in response to economic news and other events from the Asian session.

Because Australia and New Zealand are geographically reliant on China for trade, the AUDNZD pair is heavily impacted by the Asian trading session as well as local variables in Australia and New Zealand.

The Japanese yen has long been considered as a safe haven asset. Historically, low Japanese interest rates have encouraged traders to participate in the carry trade — borrowing money in yen and investing in foreign markets with greater fixed-income yields. This changed in the aftermath of the Great Financial Crisis as major central banks around the world also adopted low base rates.

When is the best time to trade forex pairs?

Understanding Forex trading sessions can also help you improve your trading approach. Except on holidays, the Forex markets are open 24 hours a day, five days a week. The forex market is a global network of brokers, exchanges, and banks worldwide. The forex opening hours of each participating country's market determine the forex trading hours.

The four primary trading sessions are:

(08:00 - 17:00 GMT) London

(13:00 - 22:00 GMT) New York

(22:00 - 07:00 GMT) Sydney

(00:00 - 09:00 GMT) Tokyo

A 24-hour forex market provides numerous opportunities for individual and institutional traders. But it is important to know when the markets are most likely to be volatile and then select which trading sessions are appropriate for your trading strategy.

When is the worst time to trade forex?

There is a significant risk for trading when liquidity drops. Low liquidity might lead to more volatility than you would typically experience during normal trading hours.

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What affects forex markets?

Changes in interest rates by central banks, economic data, and geopolitics are the key fundamentals that influence forex markets.

Interest rates

Central banks are supposed to maintain economic stability. They do this chiefly by changing interest rates. All other things being equal,  when a central bank increases the interest rate, it enhances the demand for that currency because traders want greater yields, which leads the currency to gain value against other currencies.

Higher interest rate currencies are often in more demand since they provide a better return on their investment. If, for example, the ECB increases interest rates, the Euro should rise against the dollar.

Economic data

Economic data releases provide you with insight into a country's economic performance. CPI (inflation) statistics, Nonfarm payrolls (employment data), GDP, retail sales, purchasing managers index (PMI), and others are all important economic indicators that impact currency rates. You can use the economic calendar to track future economic data releases which may affect the forex market. 

Politics

Wars, trade disputes, political disruption, civil disobedience, elections,  and policy changes can all cause turbulence in the forex market. Government decisions, particularly over fiscal policy,  influence the economy, which may increase or decrease the relative value of a currency.

Volatility

Volatility can change at any moment due to fluctuations in investor sentiment. This can be triggered by  rapid fluctuations in interest rates, significant changes in the economic outlook, or political instability. Keeping up with the most recent news is critical.

Final thoughts

In general, the ideal Forex pair to trade is the one about which you know most. As globalisation remains a major concern for most nations, the destiny of their currencies is inseparably linked.

We advise that you do proper due diligence before trading any particular forex pair. Knowledge is power and it will assist you in making smarter trading decisions.


People also asked

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At Trade Nation, we offer well over 30 different currency pairs,  including major, minor, and exotic pairs. The entire list of forex pairs can be seen here.

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When trading forex, returns are not guaranteed, and you may lose part or all of your investment. There are, however, actions you may take to limit your risk and the chance of losses.

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A country's economy, geopolitical events, and monetary policy are all variables that can influence a currency pair's price.

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There is no industry standard when it comes to minimum deposit size. Most reputable brokers leave it up to the trader to decide how comfortable they are taking on a certain amount of risk.

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The EURUSD is the most widely traded currency pair on the forex market. It pairs the currencies of the world’s two biggest economic areas in terms of Gross Domestic Product (GDP).

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Liquidity, volatility, spread, and the likelihood of slippage are the most significant factors.

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There is no definitive  'safest currency' to trade. However, some currencies are more stable than others and might serve as a safe haven for investors during times of uncertainty.

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Depending on the holding period, technical and fundamental approach, and the size of your position, you may use various techniques when trading forex.

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