The question of which is the best currency pairs is popular among forex traders. However, forex traders trade different currency pairs for different reasons.
Whether for high volatility or low volatility, there is always a push toward finding the best currency pairs to trade.
In the article, I’m going to expose the best currency pairs to trade and why.
Meanwhile, you should watch the video below for a better explanation
Forex traders have different personal reasons for trading a particular currency pair.
Many feel that high volatility is a good indicator for a good currency pair.
Others decide based on different reasons such as spread, trend, low volatility, and many other reasons.
However, some other financial analysts argue based on other fundamental factors.
- strength of the economy in question,
- business confidence,
- inflation rate,
- interest rates,
- and some other macro-economic indicators that drive fundamental analysis.
Currency trading after all is exchanging one currency for the other.
As simple as this concept is, it requires proper research when buying and selling.
Best Currency Pairs in Forex Trading
EUR/USD (Eurodollar) is the most traded currency pair in the world.
The amount of trading volume that goes with the EUR/USD accounts for 20% of the forex market.
Somehow these statistics don’t equal high volatility.
Because of the strength of the economies involved, the EURUSD is a go-to currency pair as it boosts investor confidence knowing the prices of the pair are going to be relatively stable.
Both currencies are also largely influenced by political movements.
For example, Euro is the official currency for about 28 countries.
Huge economies like Germany, Italy, Greece, etc. all have the Euros as their legal tender.
This sort of union already subjects the Euro to multi-levels of economic scrutiny.
Considering these factors including the fact that the EUR/USD has a low trading spread and relatively low volatility, makes the Eurodollar number one on this list.
In terms of daily fluctuations combined with a strong economy, the Japanese Yen(JPY) comes second place on my list.
The Japanese Yen is the official currency of Japan and the fourth most traded currency behind the Dollar (USD), Euro, and GBP (British pound sterling).
Profitable price actions and large market jumps have overall contributed to the popularity of the Japanese Yen.
The popularity and trading volume mean forex brokers charge low spreads.
Because the Japanese yen is a trending currency, it provides many trading opportunities.
Now the third most traded currency in the world, the British pound sterling is the official currency of the United Kingdom, used throughout England, Scotland, and Wales.
Although being part of the European Union till 2016, the United Kingdom never switched over to the euros as their legal tender, unlike many other Western countries.
As a result, the decision to leave the European Union dropped the Pounds sterling by nearly 30% in the subsequent months as investors searched for a more stable currency.
The GBPUSD is a currency pair that promises high volatility and market fluctuations.
However, a lot of Traders don’t mind as it also promises a lot of trading profits.
Next on the list is the USDCAD. Indeed, the exchange rate between the Canadian Dollar and the US Dollar is strongly correlated to the price of oil exported from Canada.
This is because Canada mostly earns its Dollars from the sale of oil to the United States.
As a result, the price of oil exported from Canada has a major effect on the price of the Canadian loonie.
Therefore, if you want to exchange USD, carefully monitor the price of oil to determine the ideal time to buy.
The Swiss franc is the official currency in Switzerland.
Known for its stability in times of turbulence, the Swiss Franc is considered to be a safe haven currency.
Several traders patronize the Swiss francs in times of market volatility.
The movement of the Swiss francs is usually against the movement of other currency pairs in the market.
This means that in times of a general downturn of the market, the Swiss franc rises.
The stability of the Swiss franc is influenced by several factors including political stability, exposition on foreign affairs, and approach to business affairs.
Conclusion – Best Forex Pairs To Trade
Finding the best currency pairs is subject to several factors.
These factors are largely influenced by the strengths and weaknesses, the exports and imports, and the political stability of the economy in question.
Before trading a particular currency pair, proper market research and market updates are thoroughly necessary as fundamental analysis plays a huge role in determining the overall movements of the price action.
It is useful to keep track of economic announcements which may affect the value of the currency in which you are trying to trade.
As a lot of countries and unions push towards globalization, the fate of the currencies is closely interconnected.
It is therefore imperative to study the foreign exchange market before investing