Foreign Exchange Currencies: The Most Favorable Pairs

People starting out in foreign exchange trading often do not realize how many trading opportunities this large market offers. It can seem overpowering to think that you can trade any combination of the world’s currencies.  

Theoretically at least, a trader can deal in any pair: that is, any 2 of the 150 or so currencies of the planet. Just about all nations have their own currency except for the western european states who are part of the Euro system and one or two small nations who use the US dollar. There are more countries whose currencies are fastened to the dollar to give them some economic stability. Still, there are plenty of currencies out there, and in combination that makes a huge number of forex pairs.

In practice of course there are limits on the currency pairs that an individual trader can access. Most brokers will only let you deal with certain pairs, or if they quote costs on strange pairs then the spread will be high so you’ve a higher threshold to beat before you start making money. If you would like to trade in a minor currency it is often best to do so thru a broker who is based in that country.

For most traders this isn’t even a problem. The average foreign exchange retail trader ( that is, somebody trading all alone account, regularly from home ) would not touch most minor currencies because they are too uncertain. For anybody starting, definitely the best choice is to stick with the major currencies.

So which forex currencies would be portrayed as major? There may be some debate about this but most sources count seven major currencies in order of their traded volume. They are: US dollar – USD, euro – EUR, Japanese yen – JPY, English pound – GBP, Swiss franc – CHF, Canadian dollar – CAD and Australian dollar – AUD.

Major pairs are outlined as pairs of the US buck with any other major currency. This creates six major pairs which are EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD and AUD/USD. Pairs of 2 major currencies where neither one is the US buck are called cross pairs. This gives another 30 possible pairs. An example would be GBP/CHF.

The most heavily traded pair of currency exchange currencies is EUR/USD. The high liquidity of EUR/USD has three main advantages. First, you won’t have difficulty getting matched including having stop losses matched at the upcoming point without a lot of slippage. 2nd, the spread has a tendency to be low because competition between brokers is intense for this pair. Third, there is a ton of forex reports associated with these 2 currencies and you are far less certain to miss some important statement.

With all these factors coming into play, the advice for beginners is to keep to one pair and make it a biggest, EUR/USD. That is if you are trading for yourself. If you’re using a robot, it may be set up for other forex currencies and you must go with the recommended pairs.