We all know the FX market is enormous, with tons of forex pairs to analyze. Despite the broad market selection, everyone is looking at quality and which pairs can offer the most bang for their money.
These are things to consider when exploring the best forex pair to trade. If you’re a beginner, major pairs will be your playground if you’re looking for success. Once you become more experienced, it’s time to expand your watchlist into other interesting markets.
Generally, the best forex pair to trade is a market with tight spreads, stability, and massive liquidity.
What is a forex pair?
Before diving into the best forex pair to trade, we should look at what a forex currency pair is. One massive advantage of FX over a market like stocks is that we study two instruments simultaneously.
It’s about relationships across multiple markets. If CAD is the strongest currency on one pair, chances are it will be strong across other CAD-based markets.
Therefore, you can anticipate with reasonable accuracy how the other pairs may move over a certain period. When you seek the best pairs to trade forex, a forex price quote has a base currency and quote currency.
We convey these based on their respective ISO codes, e.g., USD (United States dollar), GBP (British pound sterling), and so on.
A forex pair signifies how much of the quote we need to purchase the base currency. So, in the image above, this pair represents how many USD (1.21228) we would need to purchase one British pound (GBP).
When looking for the best forex pair to trade, you need to understand there are different types.
What are the different types of forex pairs?
We classify forex currency pairs into the following three groups:
Major forex pairs
A major pair is a market comprising the US dollar and any of the seven following legal tenders:
- Australian dollar (AUD)
- British pound (GBP)
- Canadian dollar (CAD)
- Euro (EUR)
- Japanese yen (JPY)
- New Zealand dollar (NZD)
- Swiss franc (CHF)
When you combine any of these with the USD, the results are:
The ‘greenback’ is the best currency for trading for obvious reasons. Majors are what beginners study when observing the best currency pairs to trade, representing the majority of nations in the G10 paired against the US dollar.
Therefore, the US economy greatly influences the price movements of all major forex pairs. This can be a good and a bad thing. It is good because the elements affecting the US dollar are quite well-known and predictable.
However, traders should rely on other markets not driven by American-based developments.
On the whole, major pairs are characterised by having the cheapest spreads, high liquidity, and stability.
- Low spreads: When considering the best pair to trade forex, execution costs play a massive role, especially if you’re a scalper or trade with automated systems. Generally, spreads for most forex pairs are reasonable. Yet, if you open many positions daily, the costs can add up and affect your bottom line.
- High liquidity: Liquidity in forex refers to the ease at which you can open and close a position without causing any change to the market price. It’s another way of describing volume. Because of the USD dominance, many hands are trading the majors, making them some of the best currency pairs to trade in forex.
- Stability: Here, we refer to the predictability of major pairs. There is sufficient information to analyse, whether using indicators, chart patterns or looking at economic factors. Also, major pairs have fluid price movements with little to no erratic behaviour.
Cross forex pairs
Crosses are the other instruments traders analyse when seeking the best forex pair to trade. A cross pair is a non-USD based market consisting of a combination of AUD, CAD, CHF, EUR, GBP, JPY, and NZD.
The total result is a list of 21 markets:
Crosses represent highly developed nations without the American influence of majors. Therefore, they are necessary for diversification. Despite this, the economies of crosses attract massive interest and speculation from traders globally.
Another reason why crosses are the best currencies for forex trading is they are also highly liquid. Yet, the greatest advantage is the higher volatility, which describes the magnitude of price fluctuations over a certain period.
On the downside, higher volatility means the market can swing abruptly in both directions.
Yet, it can also suggest that price can travel a greater distance, and that’s what traders desire. This Myfxbook volatility table shows us the top 10 most volatile pairs by monthly pips.
The only major drawback is the spreads with these cross pairs may be slightly higher than major pairs. This isn’t a problem if you are a swing trader or position trader. Short-term traders who execute more frequently can consider a zero spread account with a fixed commission to have a lower spread.
Otherwise, cons aside, crosses remain the best currencies to trade.
Exotic forex pairs
An exotic pair is a market that consists of a currency from a major and cross pair coupled with a currency from an emerging economy. These include CNY (Chinese yuan), MXN (Mexican peso), ZAR (South African rand), and Turkish lira (TRY), among many others.
Exotics are the least popular markets in forex and are, hence, not the best currencies to trade. Firstly, exotic forex pairs have wide spreads. This is because they are less liquid than other markets. With weaker liquidity, fewer people are trading them, resulting in higher execution costs.
Here’s a tip: if you’re a scalper or other short-term trader pursuing the best forex pair to trade, you should avoid exotics. These markets are better suited for long-term traders who can easily cover the spread.
The second issue with exotic pairs is volatility, which is the highest in forex. Now, this quality is, again, good and bad. It’s positive in the sense that you can expect pronounced movements similar to crosses.
Yet, on the downside, many exotic markets display more erratic behaviour, lacking the fluidity of their counterparts.
Still, exotics are the best currency trading for more experienced long-term traders, with their respective economies garnering some mainstream appeal. Also, they can offer positive swaps through carry trading.
5 best pairs to trade in forex
Any trader will tell you that the euro is, hands down, the best currency pair for forex trading. The chart below demonstrates the most traded forex pairs, where EUR/USD accounts for nearly 30% of the entire market.
This dominance means that this pair is highly liquid. You won’t have execution issues with the euro, provided you are trading under normal conditions. Another reason why this market is the best currency to trade right now is the spread.
You shouldn’t pay above a pip spread with virtually all brokers, with some offering less. Lastly, the euro hits the sweet spot where it’s neither overly volatile nor inadequately volatile.
‘Cable’ is among the most profitable currency pairs for one reason: volatility. It is usually the most volatile major pairs. Even when compared to crosses, it ranks fairly high, per the Myfxbook volatility table below.
Whether you’re a scalper, day trader, or swing trader, you can expect pronounced price movements with Cable and other GBP-based markets. This is why many consider Cable the best forex pair to trade. Aside from depth, GBP/USD also has affordable spreads.
This market goes by several nicknames like ‘The Widow Maker,’ The Dragon,’ and ‘The Beast.’ It’s among the most profitable currency pairs when it comes to crosses.
GBP/JPY does have some correlation with Cable. Yet, it’s an excellent market less driven by the US economy and more by Japan. It is also more volatile than GBP/USD (as shown in the table above).
EUR/CAD is another favorite for many traders when it comes to crosses and is, hence, among the most profitable currency pairs. Similar to GBP/JPY, it has expansive volatility and relatively high quality.
A critical component of this market is the Canadian dollar (CAD), which is heavily influenced by oil.
This commodity is one of Canada’s most significant exports, meaning that it does affect their currency. If you prefer oil exposure to your portfolio, EUR/CAD is the best forex pair to trade for you.
5. XAU/USD (gold)
It may seem gold is not related to currencies, but many investors consider it the best forex pair to trade. This precious metal has substantial global interest from speculators.
Its price is heavily influenced by the performance of the US dollar, making it one of the best pairs to trade forex. Yet, you should note that XAU/USD needs higher capital to open the same lot size on most pairs. Therefore, ensure you meet the minimum margin requirement so you don’t over-leverage your equity.
On the whole, what one person considers the best forex pair to trade will differ from another. Traders rarely follow a single market because your watchlist needs some diversification.
Yet, most investors won’t need anything above the major and cross forex pairs, giving you 29 individual instruments. This range is more than enough to provide opportunities constantly.
Even with this selection, be careful with correlations. Always ensure you are not doubling your risk trading in a direction on two pairs that negatively offset each other.