The foreign exchange market (Forex) is a market that never closes its doors during working days, as people from all countries of the world participate in it daily. The volume of trading in it is the largest among all business areas in the world.
The currency market takes the form of an exchange between a currency pair of two different countries. The phrase “Money never sleeps” from the famous Hollywood movie “Wall Street” sums up the foreign exchange market perfectly. Whatever time you enter the Forex, you will find it open, as it is open from 5 PM Eastern Time on Sunday until 4 PM Eastern Time on Friday, every week, 24 hours a day, during trading days.
When you start trading currencies online, you will feel overwhelmed by the massive number of currency pairs available on various forex trading platforms. What is the best currency pair you can trade then? There is no clear and direct answer to this question because it varies from one trader to another. You must first analyze the different pairs and compare them with your strategy to determine which currency pairs are best to trade.
What are the currency pairs?
Forex trading – or foreign exchange trading – is about buying and selling currencies in specific pairs. To buy and sell currencies, you must look for information about the value of each pair’s currencies. The currency pair is named after the abbreviation of two currencies, followed by the base currency’s value, which is based on the counter currency.
There is also an international law that defines the positions of currency pairs. For example, the abbreviation EURUSD 1.23 means that one euro equals $ 1.23. The base currency here is the Euro (EUR), and the counter currency is the US dollar (USD). Currency pairs are listed on most currency markets around the world.
Are Major Currency Pairs the Best to Trade?
It is not surprising that the strongest, most dominant, and the widely traded currency is the US dollar. The reason for this is simply the enormous size of the US economy, which is the largest in the world. The US dollar is the preferred reference for most currency exchanges around the world. It is the world’s premier reserve currency. The currency pairs shown below are not necessarily the best forex pairs but highly liquid ones, with most foreign exchange transactions performed.
EUR / USD (Euro – US dollar).
USD / JPY (US dollar – Japanese yen)
GBP / USD (sterling – US dollar)
AUD / USD (Australian dollar – US dollar)
USD / CHF (US dollar – Swiss franc)
USD / CAD (US dollar – Canadian dollar)
The value of each of these major currencies changes with the fluctuation of each one of them because trade volumes between any two countries change every minute. These pairs are naturally linked to countries with greater financial power and countries with high global trade volume. These are the pairs that are generally the most volatile, meaning they have the most considerable price fluctuations during the day.
Does this mean that they are the best? Not necessarily, because traders may profit from these fluctuations, but they may lose because of it as well. The pairs above offer the best trading conditions, as their spreads are smaller, but this does not mean that the majors are necessarily the best pairs to trade on Forex.
Analysis of the best currency pairs to trade
Let’s take a detailed look at the currency pairs below:
USD / EUR
The most popular forex pair, and also has the lowest spread among Forex brokers in the world. This pair is associated with a lot of fundamental technical analysis, and one of its best features is that it does not fluctuate much. If you are not in a position to risk, this is the best forex pair you can trade without questioning your decisions too much. You will also find a lot of information about this pair, which will help you avoid the mistakes that beginners usually make.
USD / GBP
This pair’s popularity stems from profitable pips and the potential for large price jumps, but you should bear in mind that more enormous profits equate to greater risk. This currency pair can be placed in the volatile category. Still, many traders prefer it and consider it the best pair to trade for them due to the abundance of market information and analysis available on the Internet.
USD / JPY
Another famous pair that we regularly see in the world of forex trading. This pair is associated with lower spreads, usually follows a smoother trend than other currency pairs, and provides exciting profit opportunities for traders.
All major currency pairs currently have tight spreads, but this does not apply to the USD / GBP due to its high volatility, and it is generally best to avoid the higher spread currency pairs. The spread that expert traders recommend is 0-3 pips, and when the difference exceeds six pips, the trading pair may become overly expensive, leading to more significant losses.
This does not mean that you should altogether avoid all high margin pairs. Instead, the best way to trade reasonably and effectively is to practice risk management in your trades, to deal with potential risks in a highly efficient manner.
Special Currency Pairs
It may be very beneficial for you to trade your country’s currency if it is not available in the major currencies, of course, and especially if your local currency has good volatility as well.
Generally speaking, your knowledge of the political and economic problems in your country will help you to have better information on which to base your trades.
It is also best to trade pairs that include your local currency (also known as “premium pairs”). In most cases, your local currency pair will be quoted against the dollar, so you should stay informed about it as well.
The dynamics of the foreign exchange market is an exciting topic. It deserves further study because it can give a strong impetus to the global economy and the ups and downs in its financial fortunes. Globalization has become a significant and urgent problem for most countries of the world, and thus the fate of these couples has become closely linked to each other. Try to study the Forex market extensively before you make any investments.
There are many currency pairs available for trading, and we recommend that you try trading most of them before choosing a particular currency pair to focus on. Still, Forex trading is full of risks, so try trading first with a demo account with a virtual balance.
Open a demo account and start trading in the live markets when you are ready, and this will put you on the path to success in the forex market.