The biggest trading market, available five days a week, around-the-clock, is forex. Since it is the most volatile market, there is potential for substantial rewards.
The US dollar and/or other major world currencies are both included in a forex currency pair.
The base currency in a currency pair is the first one, such the British pound in GBP/USD. The second currency, in this case the US dollar, is referred to as the quote currency.
The base currency will often be the trader’s home currency. The amount of the quote currency required to purchase one unit of the base currency is expressed as the price of a forex currency pair.
For instance, a currency pair of EUR/GBP 1.45 means that £1.45 is needed to purchase one Euro. A EUR/USD exchange rate of 1.89 indicates that one Euro costs $1.89.
What Sorts of Currency Pairs Are Available for Trading?
The following categories can be used to categorize forex currency pairs:
Majors
The most common kind of currency pairs to trade are majors. The US dollar will always be a part of them, and they are typically the most liquid, giving traders the best chance to trade that pair on the forex market.
Of the three different categories of currency pair, majors have the largest level of liquidity; yet, because these currencies are typically simpler to research, trading majors may be a crowded and competitive market.
Minors
Minors incorporate one of the other main world currencies but omit the US dollar (for instance, the Euro). They are less liquid than major currencies, therefore there is typically less information available about these currencies.
Therefore, trading small currency pairs is a less-competitive market that traders may be able to profit from. However, they do not always have the best trading conditions, including high spreads and low liquidity.
Crosses
Any currency combination that excludes the US dollar is referred to as a cross.
What distinguishes this from a minor?
A cross can be made up of any non-US dollar currency, unlike a minor, which must contain one of the major currencies (such as the Euro). A minor is thus a kind of cross.
Why is a Currency Pair Good?
What elements should you take into account when selecting a forex currency pair?
When Are You Available to Trade?
Do you plan to trade in the daytime or at night? This question might not appear pertinent until you take a look at the trading day’s itinerary:
Opening in Asia, followed by the Middle East, the Middle East, Europe, London, New York, and the US.
This indicates that not all of these trading areas will be active continuously or simultaneously.
For instance, if you are a night trader in the US, it’s possible that the Middle East, Europe, and London are closed, leaving you with only the US and Asia as options.
Which currency markets you can trade on will depend on what time of day it is.
Liquidity
Typically, this is the most important consideration when choosing which currency pairs to trade. Trading currency pairings that are simple to buy and sell is what you want to do as a trader.
The trader looking to profit from the irregular performance of less liquid currency pairings is the exception to this rule. This strategy, known as forex scalping, entails periodically taking modest profits throughout the day.
Majors have the highest liquidity, followed by minors and crosses, as was discussed in the preceding section.
Stability of Price
The economic health of the country or nations tied to a currency has an innate relationship with that currency’s price stability.
Like the US dollar to the US dollar or the British pound to the British pound.
The probable economic scenario of such countries should be taken into account when deciding which currency pair to use.
Predictability
Or, how much background knowledge is known about a currency.
The abundance of data available to assess how a currency is expected to behave makes trading big currency pairings—or pairs involving any significant global currency—beneficial.
Less common worldwide currencies, particularly those that are more recent to the forex market, will have less historical data available, making it harder to forecast their performance.
Top 10 Foreign Exchange Currency Pairs
The top 10 currency pairs in forex trading are listed below, out of the numerous currency combinations you can select from:
1. EUR/USD
The most often traded currency pair is the euro and the dollar, which stand for the world’s two largest economies.
The linked exchange rate for this important pair is influenced by the interest rates set by the US Federal Reserve, the European Central Bank, and the NFP (non-farm payroll) reports.
2. USD/GBP
This important pair depends on the health of the British and American economies because it consists of the British pound and the US dollar.
This pair’s linked exchange rate is dependent on interest rates set by the US Federal Reserve and the Bank of England.
The UK’s exit from the EU is another aspect of this partnership to keep an eye on.
3. USD/JPY
This significant pair, which consists of the US dollar and the Japanese yen, is very liquid.
Given that the US dollar is the most traded currency worldwide and the Japanese yen is the most traded currency in the Asian market, this is hardly surprising.
The interest rates established by the Bank of Japan and the US Federal Reserve determine the exchange rate for this pair. The frequency of natural disasters in Japan is another aspect.
4. AUD/USD
This pair, which is also significant, consists of the US dollar and the Australian dollar.
The value of Australia’s exports of commodities including iron ore, gold, and coal, as well as interest rates set by the Reserve Bank of Australia and the US Federal Reserve, are factors that have an impact on this pair.
5. EUR/GBP
This pair is a minor one because the US dollar is not part of it. It is composed of the British pound and the euro.
This currency pair is challenging to forecast due to its close geographic connection to the UK and significant trade ties across Europe.
The price of EUR/GBP has been extremely volatile in the lead-up to the UK’s withdrawal from the EU.
Interest rates established by the Bank of England and the European Central Bank are other variables to keep an eye on.
6. USD/CAD
The US dollar and the Canadian dollar are both part of this important pair.
The dependence of Canada on the price of oil, its principal export, is one aspect to watch for this duo.
The value of the Canadian dollar increases in tandem with the price of oil.
7. USD/CHF
This important currency pair, which consists of the US dollar and the Swiss franc, is typically regarded as a secure investment during times of political and economic unrest.
This combination has a high level of predictability because there is a lot of data available due to its popularity.
8. NZD/CHF
The New Zealand dollar and the Swiss franc are part of this minor pair.
Any trader wishing to invest in this pair must track international agricultural product prices due to New Zealand’s growing agricultural significance.
The Reserve Bank of New Zealand also has an impact on the price of this pair.
9. USD/CNY
The US dollar and the Chinese renminbi, sometimes known as the yuan, make up this important pair.
CNY, on the other hand, refers to the currency’s trading in the onshore Chinese trading market. Offshore trading of the Chinese yuan or renminbi is referred to as CNH.
The US-China trade war is the main variable to keep an eye on when making investments in this pair.
In the past, the Chinese government’s efforts to lower the cost of its exports have caused the CNY’s value to fall versus the US dollar.
10. HKD/USD
The US dollar and the Hong Kong dollar make up this important pair, which has a linked exchange rate that permits the HKD to fluctuate within a range of HK$7.75 to one US dollar.
The ongoing situation in Hong Kong following the protests there in 2019 is one recent and significant factor to watch in connection to this pair.
Final Conclusion
Although trading forex pairs has the potential for a substantial reward, it also takes persistence and continuous study. Numerous criteria will determine the ideal forex pairings for you to trade, including:
Your trading schedule; Your interest in making long-term investments to generate higher profits or in making numerous small-profit trades throughout the day; Your familiarity with currencies, foreign exchange markets, and international economies.
You can find our more in my other guides Best Currency Pairs to Trade in The Morning and Best Currency Pairs to Trade at Night.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.
