With so many combinations available to trade, how can you know which currency pairs to trade and in order to bring the most growth to your account? If we go by sheer volume and liquidity, the USD/EUR is the most popular and widely traded pair on the market. However, depending on the individual results that you’d like to see, other pairs may be more attractive to trade.
As the name implies, the foreign exchange (forex) market is all about exchanging currencies. Whether you’re buying or selling, you’ll always be moving currency in exchange with another currency. What defines a currency pair is the amount one currency is worth in relation to the other currency.
For example, if a quote says EURUSD 1.18, it means that one Euro is worth $1.18 USD. In this example, the base currency is Euro and the counter currency which is measured against it is the USD.
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To choose what is the best currency pair to trade can be very individual.
These are the pairs we think best to trade, and we wrote why on each pair, you have to check if it’s fit for you as a trader.
As the world’s most dominant reserve currency and as the currency of the world’s largest economy, the United States Dollar (USD) is the most widely traded currency in the world. The European Union Euro (EUR) is second in dominance and therefore makes this pair the most formidable in terms of liquidity and taking up the largest chunk of the market’s action. This pair tends to negatively correlate with the USD/CHF and positively correlate with the GBP/USD.
The next most popular pair to trade is the USD and the Japanese Yen (JPY). This pair is a bit more sensitive as it tends to reflect the political situation between the two giant economies at any given time. This pair is commonly referred to as the “gopher”. This pair tends to positively correlate with the USD/CHF and USD/CAD pairs.
The world’s largest economy and its northern neighbor the Canadian Dollar (CAD) are next on the list of most popular currency pairs to trade. This trading pair is commonly referred to as trading the “loonie”. This pair tends to negatively correlate with the AUD/USD, GBP/USD, and the EUR/USD.
Trading pairs connected from across the pond, the next most popular currency pair is Great Britain Pound (GBP) and the USD. This pairing is commonly referred to as the “cable.” The pair tends to negatively correlate with the USD/CHF and positively correlate with the EUR/USD.
Moving down the list of most popular pairs to trade, the next coupling on the list is the USD to Swiss franc (CHF). This currency pair is commonly referred to as the “swissie.” The pair tends to negatively correlate with the EUR/USD and GBP/USD pairs. The Swiss franc has generally been regarded as a safe haven for traders in otherwise tumultuous times.
The last pair on our list of the most popular pairs to trade is the Australian Dollar (AUS) and the USD. This currency pair is commonly referred to as the “aussie.” The pair negatively correlates to the USD/CAD, USD/CHF, and the USD/JPY.
Scalpers tend to follow the most major pairs which are traded, and their most preferred pairs are EUR/USD, USD/CHF, GBP/USD, and USD/JPY. Scalpers prefer these pairs because they move slowly in the market and have the highest amount of trading according to volume. Also, since these pairs are quite stable, scalpers can take advantage of them in order to achieve consecutive, albeit conservative, profits.
Volatility gives traders an idea of how much a currency might change from its current price over a set period of time. Major currency pairs are generally less volatile than emerging currencies, as they have much higher liquidity in the market. Pairs like EUR/USD are less volatile than pairs like USD/ZAR (South African rand).
As far as the most volatile in regards to the major currencies, the list is AUD/JPY, NZD/JPY, AUD/USD, CAD/JPY, and the AUD/GBP.
The biggest difference to trading with high volatility versus trading those with low volatility is that high volatility currencies will move more pips over a set period of time than currencies with lower volatility. This is where the increase in risk comes from. High volatility pairs are also prone to slippage at a greater rate.
The best currency pairs to trade are the best because they are the pairs that are traded in the highest volume. This high volume leads to greater liquidity and stability in the market. This doesn’t mean that these pairs are necessarily the best for you to trade, however, As always, you must understand your trading plan and abilities along with your goals in order to decide on the moves that are most appropriate for you. Just because someone makes a nice living off of one pair, it’s not a given that that pair will fit into your plan.
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