Best Forex Currency Pairs to Trade

Navigating the forex market can be daunting, especially with the many currency pairs available. Identifying the best forex currency pairs to trade is a key factor in maximizing trading profits while minimizing risks. 

In this article, Benzinga will guide you through the top forex pairs, explaining why they are popular and exploring the various factors that make certain pairs more favorable for trading than others.

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Quick Look: Best Currency Pairs to Trade

Trading volume is a strong indicator of market liquidity. Therefore, Benzinga uses this measure to determine the best forex pairs to trade.

Below appears a quick reference table listing some of the top forex currency pairs to trade along with their base currency, counter currency, average daily trading volume in U.S. dollars for April 2022 and the percent of the forex market’s overall trading volume they each account for. 

The average daily trading volume data quoted above was derived from the percent of overall trading volume data provided by the Bank for International Settlements (BIS) in its authoritative triennial survey of the over-the-counter forex market for April 2022. The total daily global forex market turnover was assessed by the BIS as $7.5 trillion during that same survey period. 

Explaining the Most Traded Forex Pairs

Each of the most popular forex pairs traded in the foreign exchange market has unique characteristics and trading behaviors. Understanding these factors can help traders select the right currency pair to trade for their particular strategy and risk tolerance. The following subsections list the major currency pairs that also tend to be the most traded and what makes them particularly attractive to forex traders. 

1. EUR/USD

The EUR/USD currency pair, consisting of the euro quoted in terms of the U.S. dollar, is the most traded forex pair. This pair benefits from high liquidity, narrow dealing spreads and frequent market-moving news. EUR/USD is especially popular among forex traders due to the economic strength of both the Eurozone and the United States, which provides consistent volatility and hence decent trading opportunities.

2. USD/JPY

The USD/JPY pair is another highly liquid currency pair, featuring the U.S. dollar quoted in terms of the Japanese yen. Japan's role as a major exporter and the yen's status as a safe-haven currency make this pair particularly interesting to trade. The economic policies of the Bank of Japan and the U.S. Federal Reserve heavily influence the movement of this currency pair, which tends to create decent opportunities for forex traders. This pair can also be affected by movements in the price of oil since Japan is a net oil importer. 

3. GBP/USD

The GBP/USD pair, involving the British pound sterling quoted in terms of the U.S. dollar, is known for its volatility and long-term trends. Based on economic data and political events occurring in the UK or the U.S., the pound's value can fluctuate significantly over time. This pair is particularly favored by short-term traders who thrive on rapid exchange rate movements and are adept at managing risk.

4. USD/CAD

The USD/CAD pair features the U.S. dollar quoted in terms of the Canadian dollar. Canada's economy heavily relies on oil exports, so this pair's movement is closely linked to oil prices and can show decent long-term trends with relatively low volatility. This pair is popular among traders who track commodities and appreciate the relative stability of the Canadian economy relative to the U.S. economy and the close ties between these economies that result in more modest market swings for the pair.

5. AUD/USD

The AUD/USD pair, with the Australian dollar quoted in U.S. dollar terms, is notably influenced by commodity prices, particularly gold, iron ore and wool, and typically displays moderate volatility. Since Australia's economy is closely tied to its natural resources, this pair is unusually sensitive to global economic conditions and commodity market fluctuations.

6. USD/CHF

The USD/CHF pair involves the U.S. dollar quoted in terms of the Swiss franc. The Swiss franc is widely considered a safe-haven currency, which often leads risk-averse traders to flock to it during economic uncertainty. Although it exhibits relatively high volatility and is less liquid than the other major pairs, USD/CHF is often used to hedge against economic risk, making it a strategic choice for some traders.

6. NZD/USD

The NZD/USD currency pair consists of the New Zealand dollar quoted in terms of the U.S. dollar. This pair is influenced by factors such as commodity prices (especially dairy products), interest rates set by the Reserve Bank of New Zealand and overall risk sentiment in the forex market. Although dealing spreads tend to be wider and liquidity lower, the NZD/USD pair demonstrates decent volatility that provides forex traders with acceptable opportunities for profit.

Types of Currency Pairs

In the forex market, currency pairs are categorized into four types, each offering distinct trading characteristics. The bullet points below discuss each type further.

• Major: These pairs involve the U.S. dollar and one other major currency. Examples are EUR/USD, USD/JPY, and GBP/USD. They are the most liquid and heavily traded pairs in the forex market.
• Minor: These pairs include the U.S. dollar quoted against a currency of a less significant economy than the majors. Examples are USD/SEK (U.S. dollar/Swedish krona) or USD/DKK (U.S. dollar/Danish krone). The minors tend to be less liquid than major pairs and display wider dealing spreads, but they can still offer attractive trading opportunities and trends to follow.
• Exotic: These pairs include one major currency, typically the U.S. dollar, and one currency from a smaller or emerging economy. Examples are USD/TRY (U.S. dollar/Turkish lira) and USD/MXN (U.S. dollar/Mexican Peso). Exotic currency pairs tend to exhibit wider dealing spreads, and these pairs can be highly volatile and considerably less liquid than the major currency pairs.
• Cross: These pairs do not involve the U.S. dollar at all. Examples include EUR/GBP, EUR/CHF and AUD/JPY. The crosses are often less liquid than the major pairs quoted versus the U.S. dollar, but they can offer good and diverse trading and triangular arbitrage opportunities for astute traders. They also often display decent long-term trends influenced by interest rates and the relative strengths of the economies of the involved currencies, which can appeal to position traders.

What Factors Determine the Best Forex Pair to Trade?

Several market-related or temporal factors can influence which FX currency pairs are best to trade at any given time. The bullet points below highlight some of the more important factors traders should take into account when selecting a currency pair to trade: 

• Time of day: The best trading opportunities often align with market sessions in major financial centers like London, New York, Sydney and Tokyo. Liquidity and volatility tend to be higher during these times, especially for pairs that contain the local currency.
• Liquidity: Highly liquid pairs, such as EUR/USD and USD/JPY, generally have tight dealing spreads and are easier to trade in large volumes without resulting in significant exchange rate movements. This makes them more attractive to both retail and institutional traders.
• Volatility: Pairs with higher volatility, like GBP/USD and USD/CHF, tend to offer more significant exchange rate movements that can potentially result in profit opportunities, although they also come with higher risks, which generally require the use of effective risk and money management techniques.

Take the Next Steps to Trading Forex Pairs

Trading forex with a reputable broker is of the utmost importance when it comes to the forex market. Check out this list of top broker you can create a trading account with to start trading forex currency pairs.

Choose Your Currency Pairs to Trade Wisely

Choosing the best forex currency pairs to trade involves understanding their market characteristics, the factors influencing their movements, their volatility and liquidity levels, and how they fit into your overall currency trading strategy. 

By focusing on trading the major forex pairs, most short-term traders can leverage these popular pairs' high liquidity and predictable volatility to boost their trading results. 

Whether you prefer the stability of USD/CAD or the rapid movements of GBP/USD, being better informed about these major pairs can improve your forex trading experience and overall profitability.

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