The Best Forex Currency Pairs to Trade

Major currency pairs are commonly encountered in forex trading, encompassing the exchange of currencies. Transactions typically occur in pairs, with each currency designated by its ISO currency code. For instance, the U.S. dollar is denoted as USD, the Canadian dollar as CAD, and so forth. This piece aims to enhance your comprehension of currency pairs, elucidating their mechanisms, the factors influencing their prices, and additional pertinent details.

What Are Forex Major Currency Pairs?

Forex major currency pairs involve the comparison of two currencies, where one serves as a quotation for the other. In this arrangement, one currency is evaluated in relation to another. Typically, the initial currency is referred to as the base currency, while the second is the quote currency. For example, in the EUR/USD pair, the EUR is the base currency, and the USD is the quote currency.

If, for instance, the EUR/USD quote is 1.13, it signifies that 1 EUR can be exchanged for 1.13 USD. Currency rates are subject to constant fluctuations, with the value of the EUR either appreciating as the USD depreciates or vice versa.

How do you know when to buy or sell currency pairs?

Major currency pairs constitute a significant portion, approximately 75%, of total forex trades. It’s important to recognize that not all currencies share the same level of liquidity. Those with high liquidity are more accessible for trading due to their larger pool of buyers and sellers.

Additionally, currencies that do not involve the USD are termed cross pairs. Examples of cross pairs include EUR/GBP, EUR/CHF, or EUR/JPY. Trading these pairs involves currencies without direct involvement of the US dollar.

The Best Forex Major Currency to Trade

The seven major currency pairs traded globally each have distinct nicknames, and traders often select them based on their preferences and strategies in the forex market. However, four currency pairs, in particular, are consistently prominent due to their significant trading volumes and representation of the world’s largest economies. These key pairs include:

EUR/USD: The Euro and US Dollar

The EUR/USD currency pair exhibits a positive correlation with the GBP/USD and a negative correlation with the USD/CHF. Notably, the euro, British pound, and Swiss franc all share a positive correlation.

USD/JPY: The US Dollar and Japanese Yen

The USD/JPY, typically the second most traded pair, has been influenced by political tensions between the United States and the Far East. It tends to be favorably connected with USD/CHF and USD/CAD, given the US dollar’s role as the base currency in these pairings.

GBP/USD: The British Pound Sterling and US Dollar

The GBP/USD pair maintains a positive connection with the EUR/USD and a negative correlation with the USD/CHF. This relationship is influenced by the positive correlation shared among the British pound, Swiss franc, and euro.

USD/CHF: The US Dollar and Swiss Franc

USD/CHF represents the currency pair consisting of US dollars and Swiss francs. This pair indicates the amount of Swiss francs (quote currency) required to purchase one US dollar (base currency). Trading the USD/CHF currency pair is often referred to as “Swissie” trading.

AUD/CAD: The Australian Dollar and Canadian Dollar

The AUD/USD currency pair typically exhibits a negative correlation with USD/CAD, USD/CHF, and USD/JPY pairs, considering the US dollar’s role as the quoted currency. Additionally, the correlation with USD/CAD is influenced by the positive correlation between the Canadian and Australian dollars as commodity block currencies.

NZD/USD: The New Zealand Dollar and US Dollar

NZD/USD denotes the value of 1 NZ dollar for every X US dollar. For instance, if the pair is trading at 1.50, it implies that $1.50 would be needed to purchase NZ$1.

USD/CAD: The US Dollar and Canadian Dollar

The USD/CAD currency pair exhibits a negative correlation with the AUD/USD, GBP/USD, and EUR/USD pairs since the US dollar serves as the quote currency in these pairings.

Factors Influencing Forex Currency Pairs

Traders consistently monitor the market dynamics to make informed decisions regarding major currency pairs. The value of these pairs is subject to various factors, including:

Political Climate

Instability arising from political elements such as corruption, trade disputes, and elections can significantly impact the forex market. Politics holds a substantial sway in forex trading, given that government actions can influence economic conditions, leading to fluctuations in currency valuations.

Interest Rates

The quest for higher yields prompts traders to closely watch financial stability indicators. Monitoring central banks for changes in interest rates is crucial as it directly affects trading decisions.

Economic Data

Economic indicators, encompassing factors like inflation, employment statistics, and GDP, play a pivotal role. Traders need to stay updated on a nation’s economic performance to make informed trading choices.

Tips for Trading Major Currency Pairs

For beginners venturing into the world of forex trading with major currency pairs, adhering to certain guidelines is essential:

  1. Opt for Liquid Currency Pairs: Start with liquid currency pairs to understand their movement dynamics before exploring others.
  2. Choose Optimal Trading Time: Select the most suitable trading time aligned with market dynamics.
  3. Appropriate Leverage: Be mindful of leverage, ensuring it aligns with your risk tolerance and trading strategy.
  4. Stay Informed: Regularly follow market news to comprehend how currencies respond to various events.

Tips for Trading Major Currency Pairs:

  1. Develop Trading Skills: Enhance your trading proficiency and skills over time.
  2. Define Objectives and Style: Clearly outline your trading goals and preferred style to guide your decision-making.
  3. Select a Reliable Trading Platform and Broker: Choose a reputable trading platform and broker for a secure trading environment.
  4. Consistent Methodology: Establish a consistent trading methodology and adhere to it for effective decision-making.
  5. Set Entry and Exit Points: Clearly define entry and exit points for your trades and stick to them.
  6. Calculate Probability and Implement Risk Management: Assess the probability of trade success and incorporate effective risk management strategies.
  7. Accept Small Losses: Acknowledge and learn from small losses, understanding the reasons behind them.
  8. Weekend Analysis: Conduct a thorough weekend analysis to prepare for the upcoming trading week.
  9. Maintain a Trading Journal: Keep a detailed trading journal to track performance and learn from past experiences.

Forex Major Currency Pairs and Their Pip Values

A pip, or percentage in point, is the smallest price move in the exchange rate of a currency pair. It is crucial for traders, especially those engaged in short-term strategies like day trading. The pip value depends on the lot size and the specific currency being traded. Here, we explore the major currency pairs and their associated pip values, vital for calculating leverage and making informed trading decisions.

The Four Traditional Majors

  1. Euro and US Dollar (EUR/USD):
    • Represents the Eurozone and the United States.
    • Pip movements impact the exchange rate.
  2. US Dollar and Japanese Yen (USD/JPY):
    • Significant pair with political tensions influencing movements.
    • Often connected with USD/CHF and USD/CAD.
  3. British Pound Sterling and US Dollar (GBP/USD):
    • Positive correlation with EUR/USD and negative correlation with USD/CHF.
    • Influenced by political and economic factors.
  4. US Dollar and Swiss Franc (USD/CHF):
    • Known as “Swissie” trading.
    • Reflects the exchange rate between US dollars and Swiss francs.

Cross Currencies

Cross-currency pairs exclude the US dollar and are not always considered majors. Despite this, some are noteworthy:

  1. British Pound to Euro (GBP/EUR):
    • Represents the exchange rate between the British pound and the Euro.
  2. Euro to Swiss Franc (EUR/CHF):
    • Reflects the Euro-Swiss franc exchange rate.
    • Not always classified as a major but noteworthy.
  3. Euro to Japanese Yen (EUR/JPY):
    • Captures the exchange rate between the Euro and the Japanese Yen.
    • Considered by some as a major cross-currency pair.

Understanding pip values in these major and cross-currency pairs is essential for effective risk management and leveraging strategies in forex trading. Traders often focus on these pairs due to their liquidity and potential for short-term gains.