Forex is the largest financial market in the world, with $6.6 trillion traded each trading day. The Forex market is open 24-hours a day, five days a week.There is plenty of opportunity for trading Forex.
There is a lot to learn when you start trading Forex, and, for a beginner, it can be overwhelming. One of the main issues for novice Forex traders is how to select which currency pairs to trade.
Not all currency pairs are created equal. What’s the difference between major currency pairs, minor currency pairs and exotic currency pairs? It’s no surprise that you might feel bamboozled by choice.
What novice Forex traders may not realise is that each currency pair has unique characteristics. They don’t all act the same. Some currency pairs have more liquidity and volatility than others.
What are the best currency pairs to trade for beginners?
Your experience and aptitude determine your choice. It also depends on your preferred trading strategies. For instance, do you scalp Forex, or do you day trade or swing trade Forex?
This article will explain what currency pairs are, and we will help you decide which currency pairs to focus on for your preferred style of trading.
We have picked out five of the most popular Forex currency pairs for 2021. These currency pairs are the most traded with beginners and experienced Forex traders.
- What Is Forex Currency Trading?
- What Are The Top 5 Forex Major Pairs?
- What are Minor Forex Currency Pairs?
- What Are Exotic Forex Currency Pairs?
- Which Is The Best Currency Pair to Trade in Forex?
- Technical and Fundamental Analysis
- When Is The Best Time To Trade Forex?
- Recap Of The 5 Most Traded Currency Pairs in 2021
What Is Forex Currency Trading?
Forex is an acronym for foreign exchange.
Forex traders buy and sell currency pairs to make a profit from the daily price fluctuations. Each currency pair represents two currencies. For example, GBP/USD is the sterling pound and the U.S dollar. The first currency listed is called the base currency, and the second currency listed is the quote currency. So GBP is the base, and USD is the quote.
If you buy this currency pair, you expect the sterling pound price to rise. If you sell the currency pair, you expect the U.S dollar to be stronger than the pound, and the price will fall.
Even though you are selling the currency pair, you are, in effect, buying the dollar in anticipation of the price of the currency pair falling.
What Are The Top 5 Forex Major Pairs?
There’s some dispute about whether there are seven or eight major currency pairs, so let’s look at what formulates a major currency pair.
The strongest and most widely traded currency is the U.S dollar. Not surprisingly, this is because the United States economy is the largest in the world. The dollar is the dominant reserve currency worldwide and is the preferred global exchange currency. So the dollar carries some weight.
The majors all include the U.S dollar.
Below are five of the top major Forex currencies:
- EUR/USD – (Euro – U.S. Dollar)
- GBP/USD – (British Pound – U.S. Dollar)
- USD/CHF – (U.S. Dollar – Swiss Franc)
- USD/JPY – (U.S. dollar – Japanese Yen)
- AUD/USD – (Australian Dollar – U.S. Dollar)
The above list is not conclusive. USD/CAD is as widely traded as USD/CHF, but oil prices can factor in with the price movement of USD/CAD.
Another heavily traded major currency pair is NZD/USD.
Later in the article, we will look at the characteristics of the 5 most traded currency pairs on the above list.
The prices of the major currency pairs fluctuate as trading volumes constantly change, especially during economic news announcements or unexpected world events.
The common denominator with these currency pairs is that they represent countries with high volumes of worldwide trade, and they are also countries with financial power.
The five major Forex currency pairs are popular because they have liquidity and volatility, presenting the best trading opportunities for Forex traders.
Does this mean they are the best currencies to trade?
Well, it’s possible to lose even with the best currency pairs to trade Forex. You still have to read the market, find the best setups and execute a trade at the peak moment.
The major currency pairs tend to have lower spreads and generally provide better trading conditions for retail Forex traders. The trick is to get to know the top 5 most traded Forex pairs, and, with familiarity, it becomes easier to spot price behaviours and patterns for each currency pair.
What are Minor Forex Currency Pairs?
Minor Forex currency pairs are also called cross currency pairs.
They are pairs that don’t include the U.S dollar. Generally, the spreads are wider on the minor currency pairs, and liquidity and volume are not as good as the major currency pairs.
Why are liquidity and volume important to Forex traders?
The easy answer is that liquidity and volume create price movement.
To make a profit from Forex trading, you need price fluctuations. If the price doesn’t move or only moves a few pips a day, the opportunities for trading Forex currency pairs are limiting.
That said, many Forex traders choose the minor currency pairs. In today’s global Forex market, liquidity for the minors is high enough to create enough movement for successful Forex trading.
The popular Forex minors include:
- Euro crosses
- Japanese Yen crosses
- Pound crosses
Examples of Minor Forex pairs:
Some of the minor Forex currency pairs have good liquidity. For example, GBP/JPY is a currency pair popular with traders, typically moving at least 100 pips a day. But, today, we are focusing on the major currency pairs.
Other less popular minor crosses are Aussie, Switzerland, and non-U.S CAD crosses, such as:
Lower liquidity is prevalent among the less popular pairs.
What Are Exotic Forex Currency Pairs?
Exotic currency pairs are when major currencies pair with the currency of emerging economic nations, such as Denmark, Mexico and Brazil.
Examples of exotic forex currency pairs
- USD/HKD – (United States/Hong Kong)
- USD/INR – (United States/India)
- USD/ZAR – (United States/South Africa)
Exotic Forex currency pairs have exceptionally low volatility.
There’s no reason to consider trading the exotic currency pairs when other Forex currency pairs have far greater potential with available liquidity.
Which Is The Best Currency Pair to Trade in Forex?
With over two hundred countries worldwide, you won’t be short of choice for trading Forex currency pairs.
Every day represents hundreds of opportunities for profitable Forex trading if you know what to do to find great setups.
All Forex traders want to know the best currency pair to trade and what currency pairs professional Forex traders choose.
It’s best to break down what makes a good forex currency pair, and for this, it’s essential to look at the most popular Forex currencies. These include:
- Australian Dollar (AUD)
- British Pound (GBP)
- Canadian Dollar (CAD)
- Euro (EUR)
- Japanese Yen (JPY)
- Swiss Franc (CHF)
- U.S. Dollar (USD)
A mix of currency pairs, including the above currencies, is a good start for choosing the best Forex currency pairs to trade.
Coming back to the top 5 most traded Forex currencies 2021, let’s take a deeper look at the individual major currency pairs
1.EUR/USD – (Euro – U.S. Dollar)
EUR/USD is undoubtedly the most popular pair for Forex trading for beginners and professional traders.
The spread is the lowest of most Forex pairs, and it’s easy to map out a chart for EUR/USD for technical analysis.
Despite the popularity, volatility for EUR/USD is not crazy.
There are rarely colossal price swings with EUR/USD, making it an ideal Forex currency pair for beginners. It has significant areas for support and resistance, which price action usually respects. It’s not that we are saying EUR/USD is predictable, but it is easier to read than other more volatile Forex currency pairs.
One downside with trading EUR/USD is that, occasionally, the price gets stuck in a tight range. But, if you are patient, the breakouts are usually spectacular and reasonably predictable for securing targets for a nice profit.
2.GBP/USD – (British Pound – U.S. Dollar)
There’s a long history of trade between the United Kingdom and the United States. The pound is the base currency, and the dollar is the quote currency.
It’s an attractive currency for Forex traders because when the price breaks out of a range, or it breaks support, resistance or a trendline, it does it with some gusto.
Once free of restriction, GBP/USD momentum gathers pace, which can mean some serious profits for Forex day traders.
Macroeconomic factors can influence GBP/USD. For instance, during the Brexit debacle, the pound devalued considerably against the dollar, reaching new lows not seen for over thirty years.
There are essential factors that can impact the price of GBP/USD:
The below factors can apply to all countries and Forex currency pairs but are most observable with GBP/USD
- Inflation – inflation rates correlate with currency prices. If inflation is low, it increases purchasing power. If inflation is high, the currency depreciates. If the U.K. inflation is lower than the United States inflation. GBP rises against USD.
- Interest rates – interest rates often correlate with inflation rates. The central banks may adjust interest rates to influence the currency rate to manage the country’s economy.
If the U.K. interest rate is higher than U.S interest rates, the price of GBP/USD will rise.
- Current account balance – this is the trade balance between a country and trading partners, representing payments for services, goods, interest, and dividends. If there’s a deficit, it means the country is overspending and could be borrowing capital.
If the current account balance between the U.S. and U.K. increases for the U.K., GBP/USD price rises.
- Finance sustainability – foreign investors are less attracted to countries with considerable deficits and debts. Large debts increase inflation. For investors, the concern is a potential default on financial obligations.
If the U.S public debt is higher than the U.K debt and deficit, then the price of GBP/USD rises.
- Economic Growth – as a measurement for the economy of a country, assess the GDP growth rates. Everything comes down to supply and demand. If the UK GDP rates are higher than the U.S GDP rates, then GBP/USD rises. It’s worth keeping up with the GDP rates announcements with an economic calendar.
- Employment rates – on the first Friday of every month, the U.S announce results for Non-Farm Payroll, which includes employment rates. After the announcement, all USD pairs usually spike up or down.
If the U.S employment rate is higher than the U.K employment rate, then GBP/USD price rises.
We’ve gone into some detail for GBP/USD because these macroeconomic factors significantly influence the pair’s direction. If you want to trade GBP/USD, these details will put you ahead of the average Forex trader.
As mentioned, you can apply the same factors to all other currencies.
All central banks have a responsibility to manage their country’s economy and adjust interest rates to suit their needs for a viable currency.
It’s especially vital for countries with strong trading relationships.
3. USD/CHF – (U.S. Dollar – Swiss Franc)
The Swiss franc, known as the Swissie, is considered a safe haven for investors, primarily because of low inflation.
Switzerland has strict banking policies, is seen as a politically neutral country, and leads with security and financial privacy.
Trading the USD/CHF is not dissimilar to trading GBP/USD. The pair has a habit of staying range-bound at times, but when the price breaks out, momentum takes over, and the moves can be significant.
Like EUR/USD and GBP/USD, this currency pair respects historical price zones on the charts. This information means that when the price breaks such a zone, there are gains to be made.
If you wait for a retest, USD/CHF usually makes significant moves.
4. USD/JPY – (U.S. dollar – Japanese Yen)
USD/JPY is popular with professional Forex traders.
But it can be a decent Forex currency pair to trade for beginners. It has a unique personality, which takes a bit of getting used to.
The spreads for USD/JPY usually are low and, once a trend starts, it’s easy to follow as the price action tends to be smoother than other currency pairs.
Much like USD/CHF, the price can get stuck in a range. Or sometimes, when the price reaches a known historical reversal point, it can dither there for weeks. At the time, price action is unreadable, impossible to tell if the price will break out or return the way it came. This scenario can be problematic for novice Forex traders.
If you add USD/JPY to your watch list, the wait can be worth it.
Again, once the price breaks strong resistance or support, the momentum can create significant price moves, which equals potential profits for the Forex trader.
5. AUD/USD – (Australian Dollar – U.S. Dollar)
The Australian dollar is known as the Aussie.
AUD/USD has high levels of volatility and volume. Until the 1960s, it was the Australian pound as it was attached to Sterling.
Australia has a strong trading relationship with China, which helps to boost the AUD. Whatever is happening between the two countries affects the price of AUD/USD.
The AUD is also affected by commodity prices as Australia export iron-ore and coal.
When trading AUD/USD, check what is happening in exports and the China trading relationship.
Technical and Fundamental Analysis
So, you know the 5 most traded Forex currency pairs, but what do you do now? How do you trade the top 5 Forex currency pairs?
It takes time to master Forex trading.
Sometimes it can take years to develop the skills and the mindset to become a profitable Forex trader. But don’t let that put you off. Whilst there aren’t any shortcuts, it’s possible to master the basics of Forex trading and start making profits.
When novice Forex traders start trading, they believe they have to choose between fundamental and technical analysis. But the truth is a combination of the two can sharpen your skills and give you the edge in the Forex market. They aren’t left-brained or right-brained skills because both require research and analysis.
What’s the difference between fundamental and technical analysis?
Technical analysis is about studying price charts for the Forex currency pair. You might use technical indicators, such as the RSI (relative strength indicator), moving averages or Bollinger bands.
You might add trendlines and support and resistance lines to your charts.
Technical analysis also highlights chart patterns, such as triangles and flags.
At the bare minimum, you learn how to read price action.
Fundamental analysis involves researching macroeconomic data for the countries involved in your currency pair. You may check news releases, unemployment rates, interest rates, inflation and GDP rates.
Novice traders get put off by the seeming amount of work involved with fundamental analysis. But, the question is, how successful do you want to be as a Forex trader?
Are you prepared to do the groundwork to find the best trades?
If your answer is no, then perhaps trading Forex isn’t for you.
In reality, it’s not much work to do fundamental and technical analysis. Yes, at first, it might be a challenge because you are not used to doing it.
Technical analysis is like riding a bike. Once you get it, you can’t unlearn it.
You learn to spot emerging patterns on the charts and instantly know to add a currency pair to your watch list.
Rarely do you find a trade ready to execute. There’s almost always a waiting period, and that can be a struggle for novice Forex traders.
You can learn technical analysis quickly. After a few months of daily trading and self-analysis, you’ve cracked it. You have your preferred timeframes, currency pairs, technical indicators etc., and now you have all that free time to spend doing fundamental analysis.
When you first start trading Forex, everything seems exhausting.
It’s essential that you pace yourself. Pick one or two currencies to trade, such as EUR/USD or GBP/USD, then start practising fundamental analysis for these pairs. Check the economic news, identify the key areas that may affect prices and factor this information into your daily routine.
You may be surprised at how quickly you adapt to your Forex pre-trading routine and how these actions positively impact your results.
When Is The Best Time To Trade Forex?
It matters less about the best time for trading Forex and more about setting a consistent time for trading.
If you turn up to trade Forex at random times each day, you aren’t maximising your learning potential. The Forex market has peak periods. At these times, the price action sets up for a move. If you sit down to trade after momentum has started, you may have missed the boat. Or, taking a trade now is a higher risk, more of a gamble.
If it’s possible, aim for the opening session in your country.
The 4 major trading sessions are:
- London (08:00 – 17:00 GMT)
- New York (13:00 – 22:00 GMT)
- Sydney (22:00 – 07:00 GMT)
- Tokyo (00:00 – 09:00 GMT)
As you can see, there are session overlaps. Avoid trading at these times as spreads increase significantly, especially with volatile Forex currency pairs.
During the first hour of trading, the market jostles about trying to work out a direction for a currency pair. That’s the time to observe, mark a few currency pairs to watch and wait for one currency pair to show its hand.
The first three hours of a trading session are usually the most active with the highest liquidity.
For instance, if you trade the London session from around 5-6 PM GMT, the markets become static. Prices may stall, so it’s not the time to be thinking about entering trades.
Make a note for possible trades for the following day. Or you could spend time analysing currency pairs approaching the critical areas on the chart. For instance, a pair may have pulled back to a retracement area. Tomorrow it may bounce back from this area and gain momentum again.
Be aware that some currency pairs are correlated, meaning they move in unison. Often, novice Forex traders forget or don’t know about correlation.
Let’s take an example.
You know not to risk more than 1% of your trading balance on any one trade. You’ve been watching GBP/USD and EUR/USD carefully and take a buy trade on each pair with 1% risk on each trade.
Erm, you’ve actually taken a 2% risk because if the price of GBP/USD nosedives, so does EUR/USD.
Observing correlation is especially important during economic news announcements. For instance, the United States non-farm payroll affects all USD pairs.
To learn about positive and negative correlations, you can either research the subject or open up a few charts and note that some currency pairs replicate the chart patterns of others.
When considering taking a Forex trade, always check for correlation first. If you have open orders for four positively correlated pairs, you have a 4% risk on your account.
Recap Of The 5 Most Traded Currency Pairs in 2021
The top 5 most traded currency pairs in 2021 all have good volume and liquidity.
EUR/USD is less volatile than the others, so it’s a good currency pair for Forex beginners. But, not everyone likes trading EUR/USD for that reason. As mentioned, the price can be range-bound for an extended period.
GBP/USD has some volatility, and when the price breaks out, you can catch the momentum for great profits.
Sometimes, like EUR/USD, the pair become range-bound, but, in this case, it presents opportunities. Currently (July 2021), the GBP/USD price bounces between 1.4000 and 1.3800, so there’s scope for trading, subject to analysis.
If you’d like to know more about trading GBP/USD, our article on pound to dollar price predictions covers this in detail.
USD/CHF is a currency pair traded by beginners and professional Forex traders. Like most major currency pairs, it can get stuck in price zones but gets significant momentum when the price breaks out.
USD/JPY is a currency pair often traded by professional Forex traders. The price action can be challenging to understand for novice traders.
Before trading AUD/USD, always check the current trade status between both countries, as this affects the price of the Aussie dollar.
The best time to trade Forex depends on several factors:
- Your time availability
- What currency pair you are trading
- Whether you are scalping, day trading or swing trading Forex
If you work full-time, your choices are more limited. But the essential element is a routine. If you can only analyse the Forex market in the evening, do it at the same time each day.
If you are trading GBP/USD, be aware that the London session will likely be the most active for this pair. The base currency determines activity. So AUD/USD may be more active during the Sidney session.
If you have limited time, it may be impossible to become a Forex scalp trader.
As a day trader, you need the time to analyse the charts, place your order at the start of the session and exit the market before the session’s close. Swing traders may wait days or weeks for a setup and then let their trades run for days or weeks, so time availability is less important.
Work out how much time you have and plan your trading time for peak performance as a Forex trader.
Finally, always check for correlation between currency pairs. Having open trades with positive correlation increases your risk.
Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor’s financial circumstances.
Trading or investing in stocks may not be suitable for all investors. It does involve risk and the possibility of a loss of capital.