What are the best forex pairs to trade?
There are lots of different pairs you can trade.
Each forex pair falls under a different category ― ranging from major to exotic pairs.
In this lesson, we’ll learn the different currency pair categories and what are the best forex pairs to trade.
Major forex pairs
Traders have different opinions on what makes a major forex pair.
As outlined in Lesson 2, most people would agree there are four main pairs in forex: EUR/USD, GBP/USD, USD/JPY and USD/CHF. Then you have other major currency pairs: USD/CAD, NZD/USD and AUD/USD. Thus, we have seven major currency pairs.
Notice that all these pairs contain the USD. That’s because of how the forex market was historically formed, as we talked about in the history of forex.
The US dollar is also the world’s reserve currency, with the largest amount of trade transacted in USD.
88% of all currency trades are conducted in US dollars.
A staggering amount.
Since the US dollar is heavily traded, pairs tend to have the lowest costs (spreads) for trading. The EUR/USD is the most active currency pair in the world. This pair accounts for up to 24% of daily forex trades.
List of major currency pairs
- EUR/USD – euro against US dollar
- GBP/USD – British pound against US dollar
- USD/CHF – US dollar against Swiss franc
- USD/JPY – US dollar against Japanese yen
- USD/CAD – US dollar against Canadian dollar
- AUD/USD – Australian dollar against US dollar
- NZD/USD – New Zealand dollar against US dollar
Minor and cross currency pairs
Since most of the world trades in US dollars, everything else is known as a minor or cross pair. Before cross pairs existed, it was difficult to trade in pairs like AUD/NZD. You had to swap a currency into USD before converting it into another currency.
When cross pairs were invented, it allowed traders to exchange different cross pairs without using the USD.
Another example of a cross pair is the JPY/GBP.
Here are some famous minor and cross currency pairs:
- EUR/GBP – euro against British pound
- EUR/AUD – euro against Australian dollar
- GBP/CHF – British pound against Swiss franc
- AUD/NZD – Australian dollar against New Zealand dollar
- AUD/CAD – Australian dollar against Canadian dollar
- AUD/CHF – Australian dollar against Swiss franc
- GBP/AUD – British pound against Australian dollar
Best Forex Pairs to Trade: Exotic currency pairs
And then there’s the uncommon currency pairs…
These pairs, known as the Wild West of forex, consist of smaller economies. Because their economies are smaller, their currencies are traded significantly less.
Here are some exotic currency pairs:
- EUR/JPY – euro against Japanese yen
- CAD/JPY – Canadian dollar against Japanese yen
- GBP/JPY – British pound against Japanese yen
- AUD/JPY – Australian dollar against Japanese yen
- CHF/JPY – Swiss franc against Japanese yen
- EUR/NZD – euro against New Zealand dollar
- EUR/CAD – euro against Canadian dollar
What make exotic pairs different?
Exotic pairs have the highest commission costs and spreads in forex. They often have wilder swings because of market illiquidity, as compared to major or minor currency pairs.
Your ‘Start With Forex’ takeaway: Best Forex Pairs to Trade!
Let us ask you a question: what do you think are the best forex pairs to trade?
If you guessed any of the majors, you’re right!
The major pair are the most actively traded currencies and have the tightest spreads. This makes them easy and fun to trade.
That said, we only suggest trading a few of the major pairs.
Remember, your job as a forex trader is to make money the easiest way possible.
It might seem like a fun idea to trade all the majors. But that’s a lot of analysis and time, and I don’t know anyone who wants to be at the computer all day.
You need to think, “How can I make my life easier trading forex?”.
The answer is simple, think about the best forex pairs to trade – the majors. Start with analysing, and trading, one or two pairs and get really good at trading them. By just trading the EUR/USD, for example, it would be easier since most forex traders and institutions are looking at that pair. If you start building your confidence trading the best major forex pairs, you can add more forex pairs to your list to trade.
You’re learning a lot about forex and well on your way to becoming a profitable forex trader. But, let’s take a step back. You may recall that history often rhymes. It’s important to know about past flash crashes, so when the next one comes, you will know how to react.
If you’re ready to learn about flash crashes, click here.
To your trading success,
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Lesson Seven: Which Forex Pairs Pay the Most?