The foreign exchange market, or just Forex, is built around exchanging one currency for another. Not one currency or three currencies, but two. So, traders call the currencies taking part in such exchanges "a currency pair." Each currency has a unique 3-symbol code: USD is for US dollars, GBP is for Great Britain pounds, and so on.
The first currency in the pair is called the base currency, and the second one is a quote currency. In a pair EUR/USD, the euro is a base, and the US dollar is a quote. This commonly accepted system works on the forex market and in many other places.
Which Forex Pairs Are the Best for Trading?
There are three types of currency pairs: major, minor, and exotic.
The list of the major currency pairs can vary from 3 up to 8 pairs. Of course, at the top of this list are pairs with USD as a base currency and the most traded currencies as the quote — EUR, GBP, and JPY. Major currency pairs are the most recommended for trading because of the highest trading volumes and lower spreads compared to exotic currencies. Major pairs are also the most liquid pairs.
Sometimes the list of the major currency pairs can be extended with the so-called "commodity currencies." Commodity currencies are the Australian dollar, Canadian dollar, and New Zealand dollar. The national economies behind these currencies depend on the commodity prices — gold, silver, oil, bauxites, etc.
So, minor pairs are the pairs of USD and commodity currencies and Swiss Franc. Minor pairs also include non-USD pairs of the leading currencies: GBP/JPY, EUR/JPY, and EUR/GBP. They are also called "cross currencies pairs."
Exotic pairs on the forex market are the pairs of UAD and EUR with low-volume currencies like EUR/ZAR, USD/SEK, and SGD/JPY. Most traders ignore exotic currencies because of their low liquidity. However, sometimes one or another exotic currency appears at the top of trades, and there is a chance to try it.
What Makes a Good Currency Pair?
Let us start with the fact that every forex trader dreams about a profit. Forex trading is a business like manufacturing, retail trading, or delivery service. So, the main aim is to earn money.
To get the maximum possible profit, spending less and earning more is necessary. In the forex market, the number of closed-won deals should exceed the number of close-lost trades, and/or the total balance should be positive.
How to achieve this in a volatile market? It is recommended to choose good currency pairs. It means one or both currencies should be more or less predictable, and it should be a good trading volume.
The predictability of the currency price depends on global and national economics, monetary policy, technical factors, and more. The currencies of the most developed economies are easier to predict.
For example, a regular US unemployment rate report is an important event for the US dollar because it shows the health of American economics. It is easy to predict the market reaction to the report: if the unemployment level is worse than expected, the market goes down. If it is better or equal to expected — the market goes up or stays flat. So, the currency pairs with the US dollar are mostly good.
Speaking about the trading volume, this is also needed for successful trading. The reason is simple: if the price is reasonable but the market is empty, a trader cannot close the best deal. So, a good currency should have a good trading volume to be in great demand on the market. Again, the currencies of the developed economies are the most popular: US dollar, euro, Canadian dollar, and British pound.
We return to the idea that the best currency pair should include one or both popular currencies from the developed economy. Of course, a trader can combine popular currencies with the so-called "exotic" currencies. However, not every brokerage agrees to deal with exotic currencies, and the trading volume is usually limited with the local players and remains relatively low.
So, let us stick with the classics: USD, EUR, GBP, as well as JPY and CAD.
What Time of Day Is Better for You to Trade?
You probably already know that the forex market is open 24 hours five days a week. However, it does not mean a trader can come anytime and earn a bulk of the money; it does not work like this. There are three main peaks of activity in the forex market and three trading sessions related to the main center of global trading. There are the Tokyo session, London session, and New York session.
Usually, a trading session starts in the morning, 7–9 a.m. local time, and closes at 6–7 p.m. The schedule can change because some countries alter market working hours depending on the season. Please be aware and check the current schedule beforehand.
So a trader can find the overlap windows for trading sessions from various time zones. These overlap windows are the period of maximal activity and trading volume. Many traders from different locations join the trading during the overlap windows. It is also the best time to get the narrowest spreads and execute a trade on the desirable level.
Consider the following time windows to choose the best for you:
- 1 p.m. to 4 p.m. (UTC/GMT) - European and American sessions overlap;
- 12 a.m. to 7 a.m. (UTC/GMT) — Asian overlap for Japanese and Australian trades;
- 8 a.m. to 9 a.m. (UTC/GMT) — end of the Asian session overlaps European morning.
Another hint for choosing the best time window for your trading is that the most active currency is in its native country. So, if you trade by currency pairs with the USD, try to trade during the New York session, and if your main currency is EUR, the London session is the best option. You will get the highest trading volume and the best liquidity this way.
In general, the London trading session is the most active; it overlaps with both Tokyo and New York sessions. Though the perfect time for trading depends on the chosen currency pair, the London session and its overlap with the New York session is the best option for any currency. We will provide detailed instructions on each top currency pair in the next chapter.
How to Choose the Best Currency Pair for Trading?
Life hack: if you ask a question like this, trade EUR/USD. The currency pair for the two largest economies in the world is always in demand, so you will not face the problem with liquidity. EUR/USD is predictable. All major market events are listed in the calendar.
Trading with EUR/USD, you will not have any problem with the exchange, deposit replenishment, money withdrawal, and other routine trading processes. Most brokerages support USD/EUR or EUR/USD trading. So, it is the most straightforward possible choice to bring a good profit to a trader.
However, this is not the only choice. If you feel confident with your market knowledge and trading skill, you can switch to another major currency pair: GBP/USD, USD/CAD, USD/JPY, or others. You can even add more currency pairs to your trading portfolio if you are sure you can manage it properly without losing money.
You can try trading the exotic currencies if you do not live in the USA, Canada, or Europe and have some insights from the local markets. The most recommended option is to trade local currency against the USD and vice versa. For example, if a local government plans to sign a new bill to impact the local currency rate, you can use this information in trading.
Remember that the best currency pair for you is the pair that brings a maximal profit.
Top 10 Popular Currency Pairs and Why They Are Good
Number one in the world and at least 20% of all forex market trading by volume. Two largest economies in the world. Maximal trading volumes and high liquidity. The best trading time is an overlap of the European and American trading sessions.
Since the UK Brexited from the EU, the GBP price moves independently and can offer some surprises to a trader. This pair is also heavily traded. The best time to trade is the London session, especially when it overlaps the New York session.
Traditionally, this pair deals with sudden periods of high volatility related to the Bank of Japan's monetary policy. American and Japanese sessions do not overlap, so we'd recommend sticking with the calendar of major economic events in Japan.
The price of the Canadian dollar is much affected by oil prices. While both the USA and Canada are in one hemisphere, the best time for trading is an American session.
The Australian dollar is also a commodity currency, and the fluctuations in the commodity market affect it. For AUD/USD, the best time to trade this pair is related to the major economic news and events.
This is the first and the last exotic pair on this list. The Chinese Yuan is a very questionable currency, despite being the world's third-largest economy, but a trader can try it during the Asian session.
CHF, or Swiss franc, is a lightly traded currency, not over 4% of the total forex market. However, this pair is stable and reliable due to the special Swiss position in the financial world. Try to trade it during the European session.
This pair is interesting because it does not include the USD, but it has a high liquidity and trading volume. Try it at the short overlap window, when the European session overlaps with the American one.
It is a very European pair. The most active trading occurs after the important Swiss or EU financial news, like the unemployment rate or CPI. European time trading is recommended.
A New Zealand dollar ("Kiwi") is not the most popular currency in the world, but using it as a quote currency is possible to get some good profit. Track the local news and open trading positions correspondingly.
The best currency pair is the pair that brings a maximal profit to a trader. We'd recommend trading with the major pairs, but sometimes it is a good occasion to try something new, like minor pairs or pairs with exotic currencies.