Summary:
Best Forex Pairs to Trade
Forex trading revolves around currency pairs like EUR/USD, USD/JPY, and GBP/USD, which are known for high volume, liquidity, and low spreads. The best pairs depend on trading style and timing, with overlaps in major markets (e.g., New York/London) providing ideal opportunities.
Main Points:
- Forex Pairs: Currency pairs include a base and quote currency (e.g., GBP/USD).
- Major Pairs: Popular pairs like EUR/USD and USD/JPY offer high liquidity and lower per-transaction costs.
- Timing: Trade during major market overlaps for increased activity and opportunities.
- Categories: Major, minor, and exotic pairs vary in volume and risk.
No matter the trading style, strategy, goals, or timeframe, every Forex trade has one thing in common: it centers on Forex pairs. In Forex trading, every trade relates to the basic concept of buying one currency and selling another.
So, what are Forex pairs, and, more importantly, what are the best Forex pairs to trade? What are the major Forex pairs, and what sets them apart from Forex pairs in other categories? Keep reading this guide to currency trading for beginners to learn more.
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The Basics of Forex Pairs: A Brief Review
Before diving into the best currency pairs to trade or the best indicators for currency trading, it’s good to have a little foundational knowledge.
When Forex is traded on the global market, it’s traded in pairs. A currency pair always represents two currencies. These pairs (sometimes called currency pair groupings) are always written using three-letter codes, such as the GBP/USD pair, which represents the UK pound and US dollar.
More specifically, each pair includes:
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- The base currency: The base currency is always the first half of the pair, shown on the left when written. That half of the pair is always equal to one. In other words, the first currency shown is one dollar, pound, or unit of any given currency.
- The quote currency: The quote currency, the second half of the pair shown on the right, is a variable. When read together, a currency pair and quote tell you how much of the second or quote currency is needed to buy one unit of the first or base currency.
Here’s an example, using that same GBP/USD pair mentioned above. When GBP/USD is at 1.21561, 1.21561 US dollars are needed to purchase 1 UK pound. In other words, a UK pound can be seen as worth $1.21561 with this quote. The exchange rate constantly changes, offering many trading opportunities to Forex traders.
Traders aim to earn a positive return from Forex pairs by speculating on whether a given currency will go up or down in price.
A trader who buys a Forex pair technically buys the base currency and sells the quote currency, as the Corporate Finance Institute explains. This trader expects the base currency to rise in price relative to the quoted currency. Traders who sell a pair take the opposite action and expect the opposite result.
The Best Forex Pairs to Trade: Key Insights
The best Forex pairs to trade aren’t set in stone. Everything from trading style to the times when traders interact with the foreign exchange market has a major influence over what is “best” for an individual trader.
That said, certain Forex pairs are especially popular for reasons that benefit traders. This is in large part due to the high volumes at which they trade and the associated price volatility (how much prices change and how quickly price movements happen). For many traders, these are the best Forex pairs.
That high volume and volatility lead to low spreads — the difference between the highest price a buyer will buy for and the lowest price a seller will sell for. Lower spreads mean lower costs per trade and demonstrate high liquidity. In very basic terms, that means it’s easy to find a buyer or seller and to make each trade at a low cost per transaction.
As Investopedia points out, there are several major currency pairs. These are the pairs that trade the most frequently across the continuous trading sessions on the global Forex market, which is open 24 hours a day, five days a week.
Keep in mind that there isn’t a strict definition of which pairs qualify as major Forex pairs. However, the following four are commonly seen as major pairs, bringing about little, if any argument from traders and market experts as to their status:
- EUR/USD (the European Union Euro and US Dollar).
- USD/JPY (the US Dollar and Japanese Yen).
- GBP/USD (the UK Pound and US Dollar).
- USD/CHF (the US Dollar and Swiss Franc).
Some lists of major pairs also include USD/CAD (US Dollar and Canadian Dollar), AUD/USD (Australian Dollar and US Dollar), and NZD/USD (New Zealand Dollar and US Dollar).
Other major Forex pair categories include minor pairs, which do not involve the USD Dollar and instead pair two other major world currencies. Exotic pairs, meanwhile, bring together a major currency and a currency from a smaller and/or developing national economy.
The Best Currencies to Trade at What Times
Time plays a major role in the Forex market and in determining the best Forex pairs to trade. Even though the market is open all day, five days a week, trading activity tends to rise in specific areas during the traditional workday, roughly 8 or 9 a.m. to 5 or 6 p.m.
The best time to trade in general is when major markets — large cities with major financial sectors, like New York, London, and Tokyo — overlap each other during that timeframe. Babypips offers an in-depth guide to Forex market session overlaps.
Because more traders are active at these times, there is increased trading volume and higher liquidity during the overlaps.
As for the best currency pairs to trade at these times, all major pairs, and many others, are uplifted to one degree or another during these overlaps. However, the most active pairs during such times are often those with a connection to one or both markets. For example, pairs including the Canadian Dollar and UK Pound are especially active during the New York/London overlap.
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