If you are interested in forex but have never tried trading before, sooner or later, you come across the question of what currency pair is safe to trade so that you don’t lose half of your deposit on your first position. And the answer is as simple as can be, the safest currency pairs are the most stable ones. Read on to learn which currency pairs are the best to start your trading journey.
Groups of Currency Pairs
In the FX world, all currency pairs are conventionally divided into three groups: exotics, minors, and majors. Such classification is based on the criteria of trading volume, liquidity, and volatility. Exotics (e.g., USD/MXN, USD/TRY) are the pairs that include at least one currency of a developing country. They are prone to extremely high volatility, meaning their quotes change drastically, sometimes in a matter of seconds. The number of market participants trading exotics is relatively small, which means their trading volume is low.
Read more: Why Trading Low-Volume Currency Pairs Can be Risky
Minors (e.g., EUR/CHF, EUR/GBP, GBP/JPY) tend to be less volatile and more liquid than exotics. And lastly, major currency pairs are the ones most heavily traded in the market. The eight major currency pairs are EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, GBP/JPY, EUR/JPY, and USD/CAD. Due to their high liquidity, major currency pairs are often accompanied by better trading conditions, including tighter spreads.
What is a stable currency pair
Saying a "stable currency pair," we mean one that doesn't tend to sharp price fluctuations throughout a short time period. Given the classification above, the most liquid, and thus the least susceptible to large price swings, pairs are majors. The liquidity of these pairs is justified by high trading volume, especially supported by institutional trading. The high liquidity of a currency pair guarantees that you will not find yourself holding an asset you cannot sell when needed, simply because there is no one to buy it at the current price.
Read more: How to Read Forex Currency Pairs
List of Top 10 Stable Currency Pairs
The EUR/USD currency pair takes the largest portion of the overall trading volume. This pair can boast high liquidity as it consists of the currencies of the two powerful markets. The pair is known to have a positive correlation with the GBP/USD and a negative correlation with USD/CHF. The best time to trade the pair is the overlap of the European and American trading sessions.
GBP/USD is another heavily traded currency pair. The pair positively correlates with EUR/USD and negatively correlates with USD/CHF. All major news that can affect either of the currencies in the US or Britain should be considered when trading the "cable" (GBP/USD). The British pound also has a positive correlation with certain commodities, such as base metals and Brent crude oil.
USD/JPY is the second most traded currency pair. It is positively correlated with USD/CAD and USD/CHF since the US dollar is the base currency there. USD/JPY can be successfully traded during the Asian and North American trading sessions, especially during important economic events either in Japan or the United States. You can find the detailed schedule of trading sessions here.
The USD/CAD currency pair is negatively correlated with the GBP/USD, AUD/USD, and EUR/USD due to the US dollar being the quote currency in all three pairs. Since the Canadian dollar is a commodity currency, the "loonie" (USD/CAD) is much affected by the oil quotes. Hence, traders of this pair should closely monitor OPEC meetings. Understandably, the most active trading time for the pair is the operating hours of the North American trading session.
AUD/USD tends to have a negative correlation with USD/CAD, USD/CHF, and USD/JPY as the US dollar is the quote currency in these cases. Trading the pair may be advantageous during the North American or Pacific trading sessions when there is important news in Australia.
One exotic pair on the list is USD/CNY. China's economy is strong, which makes its currency a stable one. Moderate volatility of the pair allows traders to profit from daily fluctuations without the risk of too abrupt price changes.
Both safe haven currencies, the American dollar and the Swiss franc are commonly traded as the USD/CHF pair, also called the "Swissie." The USD/CHF is negatively correlated with the GBP/USD and EUR/USD. Interest rates, GDP, and employment data of Switzerland and the US are the most important indicators that predetermine the quotes. The overlap of the European and the North American trading session is probably the best time for trading the pair.
Read more: Forex Trading for Beginners in 2022
Unlike the currency pairs mentioned above, GBP/JPY doesn’t include the US dollar. It is highly influenced by events taking place in Japan and the UK. The pair can develop strong trends allowing traders to gain many pips on a single position. A short period of overlap between the Asian and the European sessions can be great for trading this instrument.
Though EUR/CHF (Euro/Swiss Franc) is not a major currency pair, it is popular among traders, particularly due to its inverse relationship with EUR/USD. Liquidity in EUR/CHF reaches its peak during the European session. Those trading the currency pair follow European Central Bank (ECB) releases, European employment rates, and import/export data. Switzerland’s GDP data, inflation rates, and employment rates can affect the Swiss currency thus should be closely monitored by traders.
NZD/USD ("Kiwi") is a popular minor currency pair. The NZD/USD has a positive correlation with AUD/USD. The most important data to monitor when trading the pair are interest rate changes of the Reserve Bank of New Zealand and the Fed.
Read more: What are the Best Forex Currency Pairs to Trade
It is true that a certain degree of volatility is required in order to profit in the forex market. However, too much of it may be risky. This is why many traders prefer to trade major currency pairs (EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, GBP/JPY, and USD/CAD). This group of currencies is highly liquid and, as a result, unlikely to experience significant unexpected price moves. Some minor currency pairs can become a good alternative (NZD/USD, EUR/CHF). Among the exotic currency pairs, USD/CNY offers some degree of price stability due to the strong positions of the Chinese economy.
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What are the Most Stable Currency Pairs?
The least volatile and thus the most stable forex pairs are majors: EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, GBP/JPY, EUR/JPY, and USD/CAD.
What is the Safest Currency Pair to Trade?
Beginner traders are recommended to trade major currency pairs and avoid trading exotics. Read trading recommendations for four major currency pairs (EUR/USD, GBP/USD, USD/JPY, and USD/CAD) in JustMarkets daily forecasts.
What is the World's Strongest Currency?
The Kuwaiti dinar (KWD) is the world’s most expensive currency. The strength of the currency is attributed to the fact that Kuwait is a major exporter of oil to the global market.
How Many Currency Pairs Should I Trade?
It is best to start learning by trading a single currency pair. It is also advisable to trade a major currency pair, e.g., EUR/USD.