Best Forex Currency Pairs To Trade – Forex Trading Strategies
I’ve been trading forex for a long time and I can tell you that there are more strategies than you could ever imagine and currency pairs than you care to know. You just need to know how to pick the right strategy and how to execute it. In this article, I’m going to tell you about top 10 most traded currency pairs. These currency pairs are the most popular, most profitable, and easiest to trade.
We will also try to analyze whether these currencies are profitable for traders.
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The forex market is the largest and most volatile market in the world with hundreds of currency combinations to choose from. However, there are only 10 currency pairs that make up 90% of all trades in the world’s largest market.
Forex currency pairs explained
Currencies traded on the forex market are always paired one is the base currency and one is the counter currency. Currency pairs are traded in pairs because they are used to represent the value of an asset or an amount of money.
It is done so because most currencies have different values to one another, but they all have a similar value to the US Dollar. This means that when the US Dollar changes in value against other currencies, it will effect both the base currency and the counter currency. The base currency is the currency of which you are trying to purchase something from another country. It is the currency you want to use to buy your desired item.
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The base currency is the currency whose value is used to calculate the price of the quote currency. For example, if you want to buy a dollar, then you have to spend at least $2.00, so the dollar is your base currency and the euro is your quote currency. If you want to buy euros, you have to spend more than $3.00, so the euro is your base currency and the dollar is your quote currency.
The EUR/USD currency pair is an example of a quote currency. The base currency is the Euro (EUR) and the quote currency is the US Dollar (USD). Supposing the quote price is 2.2000, it means that one euro is worth 2.20 US dollars.
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If you’re new to currency trading, you might be wondering if it’s even possible to make a living from it, considering that the vast majority of tiny traders don’t. The short answer is yes. YES! It is certainly necessary to generate a continuous income from Forex trading, but you must be well-versed in the subject.
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If you’re new to trading, you might well wonder if it’s really possible to make a living from currency trading, given that the majority of small traders do not. The short answer? YES! It’s definitely possible to make a consistent income from Forex trading but you have to know what you are doing.
Forex Trades 24 Hours a Day, Five Days a Week
From 5 p.m. EST on Sunday to 4 p.m. EST on Friday, the currency market is open 24 hours a day in various regions of the world. Different worldwide time zones contribute to the FX market’s ability to trade 24 hours a day.
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1. EUR/USD
When the dollar rises, the value of the euro tends to fall and vice versa. This is because the euro has a strong correlation with the US dollar and the Swiss franc, whereas the British pound and the Swiss franc are inversely correlated with the dollar.
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The EUR/USD currency pair tends to have a negative correlation with USD/CHF and a positive correlation with the GBP/USD. This is due to the positive correlation of the euro, the British pound, and the Swiss franc.
2. USD/JPY: Trading the “Gopher”
1.Traders use the USD/JPY pair for two reasons:
2. The JPY is often used as a proxy for the USD;
3. The pair is less volatile than many of the other pairs available.
The U.S. dollar is the most commonly used currency in the world and it is the base currency for the currencies in all three pairs. When you buy any of the three pairs, you’ll be paying in dollars.
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The next most actively traded pair has traditionally been the USD/JPY. This pair has been sensitive to political sentiment between the United States and the Far East. The pair tends to be positively correlated to the USD/CHF and USD/CAD currency pairs due to the U. S. dollar being the base currency in all three pairs.
3. GBP/USD: Trading the “Cable”
There is a strong correlation between the British pound, the Swiss franc, and the euro. The British pound tends to be positively correlated to the USD/CHF and negatively correlated to the EUR/USD. The Swiss franc tends to be negatively correlated to the USD/CHF and positively correlated to the EUR/USD. The euro tends to be positively correlated to the USD/CHF and negatively correlated to the EUR/USD.
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The GBP/USD pair tends to have a negative correlation with the USD/CHF and a positive correlation to the EUR/USD. This is due to the positive correlation between the British pound, the Swiss franc, and the euro.
4. AUD/USD: Trading the “Aussie”
It’s important to note that the AUD/USD currency pair tends to have a negative correlation with the USD/CAD, USD/CHF, and USD/JPY pairs due to the U. S. dollar being the quote currency in these cases. However, the AUD/USD currency pair does not tend to be correlated with the USD/CHF currency pair.
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The AUD/USD currency pair tends to have a negative correlation with the USD/CAD, USD/CHF, and USD/JPY pairs due to the U. S. dollar being the quote currency in these cases. The correlation with the USD/CAD is also because both the Canadian and Australian dollars share a positive correlation with each other as both are commodity block currencies.
5. USD/CAD: Trading the “Loonie”
The USD/CAD currency pair tends to be negatively correlated with the AUD/USD, GBP/USD, and EUR/USD pairs due to the U. S. dollar being the quote currency in these other pairs.
The Canadian dollar (CAD) is a strong currency. It has been relatively stable over the past few years, and as of today, CAD is trading at 1.29 USD.
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The USD/CAD currency pair tends to be negatively correlated with the AUD/USD, GBP/USD, and EUR/USD pairs due to the U. S. dollar being the quote currency in these other pairs.
6. USD/CNY: Trading the Yuan
This makes sense because the Chinese economy is still growing at a moderate rate. However, the future of the US China trade relationship is uncertain, so it is important for investors to keep an eye on this pair.
There are two main factors that drive the USD/CNY rate: the relative strength of the US economy compared to the Chinese economy and the economic policies of the two countries. The US economy is the most powerful on the planet, while China’s economy is the second largest. When the US economy is doing well, it makes sense for the USD/CNY to be higher. However, when the US economy falters, it tends to pull down the value of the USD/CNY.
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The USD/CNY currency pair represents the relationship between the US dollar and the Chinese renminbi, more commonly known as the yuan. In recent years, it has represented about 4% of daily forex trades.
The US China trade relationship has been a volatile one in recent years, providing USD/CNY traders with plenty of speculative opportunities.
Different types of forex pairs
There are many different types of forex pairs and you can trade them all. They have different risk profiles, different levels of liquidity and different trading strategies. Here is a list of the most common forex pairs: USD/JPY – USD/JPY is one of the most liquid and popular currency pairs in the world. The pair trades in both spot and derivatives markets. It has a wide spread and low liquidity.
EUR/USD
The Euro has been the world’s reserve currency since 1999. For this reason, it’s been an integral part of the global financial system for the past two decades. Because of its prominence, the value of the Euro has fluctuated greatly over time.
The main reason why the EUR/USD has such tight spreads is because of the high volume of transactions that occur on a daily basis. These transactions help to keep the spread between the bid and ask prices at a minimum, so that large trades can be made with little impact on the market.
The US dollar has been in high demand lately, and that’s because of the low interest rates. The European Central Bank (ECB) has also decided to lower the interest rates in an effort to stimulate growth in the eurozone. This is because the eurozone is still in a recession and there is a need for growth to get it out of this recession.
We all know that the ECB has been buying bonds and other assets to drive down the price of the euro. If the ECB had set higher interest rates than the Fed, it is likely that the euro would appreciate relative to the dollar.
USD/JPY
1.The USD/JPY currency pair is made up of the US dollar and the Japanese yen. It is the second most traded forex pair on the market, representing 13.2% of all daily forex transactions in
3. Similar to EUR/USD, USD/JPY is known for its high liquidity, something it gets from the fact that the yen is the most heavily traded currency in Asia, and the US dollar is the most commonly traded currency in the world.
I was talking to a friend who works at the BoJ, and she told me that the BoJ is responsible for setting the interest rates on all loans. In the US, we have the Federal Reserve and the ECB, but in Japan, it’s the BoJ. So when I asked her if the BoJ has any influence on the yen, she said yes, but it’s not like the Fed or the ECB.
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Also known as ‘the gopher’, the USD/JPY currency pair is made up of the US dollar and the Japanese yen. It is the second most traded forex pair on the market, representing 13. 2% of all daily forex transactions in 2019. 1
Similar to EUR/USD, USD/JPY is known for its high liquidity, something it gets from the fact that the yen is the most heavily traded currency in Asia, and the US dollar is the most commonly traded currency in the world.
Much in the same way as the Fed and ECB, the Bank of Japan (BoJ) sets the interest rates for the Japanese economy which, in turn, affects the value of the yen relative to the US dollar.
GBP/USD
The GBP/USD pair is a currency pair, which means it represents the value of one currency in terms of another. In this case, the pound sterling is being compared to the US dollar.
When it comes to currency pairs, the USD is considered the world’s reserve currency. The reason why is because the United States has the strongest economy, which makes its currency stronger. In fact, it is so strong that it is often referred to as “the dollar” because it is so widely used.
The interest rate is one of the key indicators that investors look at when determining whether or not to invest in a particular asset class.
One way to look at the GBP/USD currency pair is as a forex pair, but it is also a pair of currencies. In this sense, the two currencies are interchangeable and the rate of exchange is determined by supply and demand. The GBP/USD currency pair is the most liquid of all the currency pairs, meaning that there are lots of traders buying and selling the GBP/USD currency pair.
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The currencies in this pair are the pound sterling and the US dollar. GBP/USD is colloquially called ‘cable on account of the deep sea cables that used to deliver the bid and ask quotes between London and New York. In 2019, the GBP/USD pair made up 9. 6% of all daily forex transactions. 1
Like with most other currency pairs, the strength of GBP/USD comes from the respective strength of the British and American economies. If the British economy is growing at a faster rate than that of America, it is likely the pound will strengthen against the dollar. However, if the American economy is doing better than the British economy, the reverse is true.
Just like the first two most popular currency pairs on this list, the quote price of GBP/USD is affected by the respective interest rates set by the Bank of England (BoE) and the Fed. The subsequent differential between the interest rates on the pound and the dollar can have a great effect on the price of the GBP/USD currency pair.
AUD/USD
1.The Australian dollar has fluctuated in recent years. In 2017, it was worth $
2. 008, but by the end of 2019, it had risen to $
The Australian dollar is an important component of the world economy, so fluctuations in its value can have a ripple effect on other markets. When the AUD/USD exchange rate is at its highest, the US dollar is weaker and vice versa. This means that if the value of the Australian dollar falls, the US dollar will become stronger.
A lot of people believe that the best time to invest in the stock market is when it is down. This is because stocks are a long-term investment and they will tend to outperform other forms of investments when it’s not performing well.
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AUD/USD, sometimes referred to as the ‘Aussie’, represents the Australian dollar against the US dollar. It made up 5. 4% of daily forex trades in 2019. 1 The value of the Australian dollar is tied closely to the value of its exports, with metal and mineral exports such as iron ore and coal accounting for a large proportion of the country’s gross domestic product (GDP). 2
A slump in the value of these commodities on the world market would likely cause a reciprocal slump in the value of the Australian dollar. In the case of the AUD/USD currency pair, this means the US dollar would become stronger, so it would cost fewer US dollars to buy one Australian dollar.
Much in the same way as the previously mentioned currency pairs, the AUD/USD exchange rate is also affected by the interest rate differential between the Reserve Bank of Australia (RBA) and the US Federal Reserve. For example, if American interest rates are low, USD would probably weaken against AUD and it would cost more US dollars to buy one Australian dollar.
USD/CAD
The USD/CAD is one of the most liquid forex pairs in the world. Its trading volume in 2019 reached $1. 5 trillion, making it the 11th largest currency pair traded by volume. USD/CAD is traded on most major forex exchanges, including the New York Mercantile Exchange (NYMEX), Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE).
The opposite is true when oil prices fall: more oil must be bought in dollars to cover the costs of production. As a result, the value of the Canadian dollar tends to strengthen when oil prices fall, which means that oil producers in Canada can earn more in Canadian dollars than they could earn in US dollars.
The Canadian dollar is very closely tied to the price of oil. This means that as the price of oil increases, the value of the Canadian dollar will increase. As the price of oil drops, the Canadian dollar will fall in value. This will be particularly true during times of a price spike, as the Canadian dollar tends to weaken when the price of oil spikes.
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USD/CAD
USD/CAD is commonly called the ‘loonie on account of the loon bird which appears on Canadian dollar coins, and it represents the pairing of the US dollar and the Canadian dollar. In 2019, USD/CAD transactions made up 4. 4% of daily forex trades. 1 The strength of the Canadian dollar is closely linked to the price of oil because oil is Canada’s main export.
Since oil is priced in US dollars on the world markets, Canada can earn a large supply of US dollars through its oil exports. As such, if the price of oil rises, it is likely that the value of the Canadian dollar will strengthen compared to the US dollar.
It is a general rule that the US dollar normally weakens when the price of oil increases, because if the dollar is weaker, more US dollars must be converted into other currencies to buy the same amount of oil as before. In turn, expensive oil means that the Canadian dollar will likely strengthen due to the close ties between the Canadian dollar and the price of oil.
As such, traders should keep an eye on the price of both Brent crude and US crude when trading USD/CAD, as any fluctuations in the oil market will likely reverberate in the exchange rate of this forex pair.
USD/CNY
The Yuan’s decline against the US dollar has made it one of the most traded pairs in the world. In fact, the USD/CNY is the second largest pair in the world and it is the most traded currency pair in the world. The currency pair has had a strong downward trend since the start of the US China trade war.
The CNH/USD pair is the offshore version of the yuan. CNH is traded on the Hong Kong Stock Exchange and has historically been more volatile than CNY.
This is the best way to speculate on the Chinese Yuan. Traders should keep an eye on the US China trade war as any developments are likely to affect the price of this currency pair. The value of the Yuan is determined by the US dollar and the value of the US dollar is affected by the global economy.
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USD/CNY
The USD/CNY currency pair is the partnership of the US dollar and the Chinese renminbi commonly known as the yuan which represented 4. 1% of daily forex trades in 2019. 1
The yuan has largely been decreasing relative to the US dollar since the start of the US China trade war. This has been due in part to the Chinese government, which has let the yuan depreciate in the knowledge that this will make the country’s exports cheaper and increase their already sizable market share in countries other than the US.
With IG, you can trade the USD/CNH currency pair CNH being the offshore version of the yuan that is traded outside of mainland China. Yuan is referred to as CNY only when it is traded in the onshore Chinese market. CNH has traditionally not been as tightly controlled as CNY by the Chinese government, which means it can be more volatile. This volatility can make it a better choice for speculative trading.
Traders should keep an eye on the US China trade war as any developments are likely to affect the price of this currency pair.
USD/CHF
The Swiss economy is considered one of the most stable economies in the world. This means that people who invest in Swiss stocks are generally less concerned with fluctuations in the currency exchange rate than people in other countries. Over time, the Swiss economy tends to grow faster than that of other economies and this can lead to an increase in the value of the Swiss franc.
I’ve noticed that in times of market instability, the Swiss franc usually becomes stronger against the US dollar. This is because the currency is perceived as a safe haven during times of economic uncertainty. However, if there is a period of stability, the Swiss franc tends to weaken against the US dollar. As a result, the Swiss franc is likely to be a less attractive investment during periods of stability, but an attractive one during times of market instability.
The Swiss franc is one of the most popular foreign exchange pairs, accounting for approximately 3. 6% of all global FX trading. It is often used by traders and investors as a safe haven or to hedge against the euro.
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The USD/CHF currency pair is made up of the US dollar and the Swiss franc and is commonly known as the ‘Swissie’. USD/CHF is a popular currency pair because the Swiss financial system has historically been a safe haven for investors and their capital.
As a result, traders often turn to CHF during times of increasing market volatility, but the Swiss franc will typically see less interest from traders during times of greater market stability. During times of increased volatility, it is likely the price of this pair would drop as CHF strengthens against the USD after experiencing increased investment.
Since CHF is turned to primarily during times of economic volatility or as a safe haven, it is not as actively traded as the six preceding currency pairs on this list. However, USD/CHF still accounted for 3. 6% of all daily forex transactions in 2019. 1
EUR/GBP
EUR/GBP is a popular currency pair that is often used as a proxy for predicting the direction of the European Union. In fact, EUR/GBP was the ninth most traded currency pair on the Forex Market in 2019. Traders use this currency pair to speculate on the future direction of the euro against the British pound.
It’s important to be aware of the impact of any announcements from central banks which could potentially affect the value of the pound against the euro. In the case of the UK, this is because we are due to leave the EU in March 2019, so it’s possible that the pound could be affected by any announcements which may be made in relation to Brexit.
Although it is tempting to jump into a volatile currency pair, you need to have a clear strategy in place before making a trade. Before placing a trade, you need to have a risk management strategy in place.
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EUR/GBP
The pairing of the euro and the British pound in the EUR/GBP pair is often seen as one of the most difficult pairs to make accurate price predictions for. This is because EUR and GBP have had a historical link given the proximity of the UK to Europe and the subsequent strong trade ties between these two economies.
Despite the supposed difficulties in predicting its movements, EUR/GBP transactions still made up 2. 0% of daily trades in 2019, making it the ninth most traded currency pair on our list. 1
As with the other currency pairs on this list, traders should keep an eye on any ECB and BoE announcements which could affect the exchange rates of the euro and the pound, which would increase volatility further.
In recent years, this currency pair has fluctuated in price quite unpredictably primarily due to the uncertainty surrounding Brexit. The high level of volatility can be attractive to traders, but it is important to have a risk management strategy in place before opening a position in a volatile market.
To keep up to date with any Brexit news that may have affected the price of the EUR/GBP currency pair, visit IG’s Brexit events page.
What Are the Most Commonly Traded Currency Pairs?
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Conclusion
While the EUR/USD leads the way in terms of daily traded volume in forex pairings, traders can choose from a variety of other feasible currency pairs with high liquidity in order to make a profit. Before choosing a currency pair to trade, traders should evaluate a variety of criteria and do their own technical and fundamental analysis to determine whether the currency pair is a viable trading choice at that given time, based on central bank pronouncements or continuing trade conflicts.