12 Best Forex Pairs to Trade

Navigating the world of Forex can feel like standing in front of a buffet with a loaded plate. With countless currency pairs, finding the best ones to trade can make a big difference in your trading success. This is especially true when learning how to trade futures options, where Forex pairs can offer unique opportunities for maximizing your capital. So, How to Make Money on Forex?

This blog will explain the best Forex pairs to trade, helping you make smarter choices and improve your trading results.

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How Does Pair Trading Work

Pairs trading involves taking a long position in one asset and a short position in another, which usually have a high correlation. This strategy is market-neutral, allowing for profits in almost any market condition. Think of it as a way to capture opportunities beyond standard futures trading. It’s especially accessible in the currency market due to the strong relationships between different currency pairs.

Real-World Example: EUR/USD

Consider the euro and the US dollar. Historically, these currencies move closely together. If the USD rises while the euro stays the same, a trader might buy a euro contract (extended) and sell a USD contract (short). The assumption is that the currencies will eventually realign. The trader benefits from the respective positions if the euro rises or the USD falls.

Why Pairs Trading is Like Watching Water Find Its Level

Pairs trading operates on the idea that prices will eventually return to their average relationship. It offers several advantages over trading outright futures. For slower traders, pairs trading provides a more manageable pace, as outright futures markets can be unpredictable. With pairs trading, the frequent back-and-forth movements allow traders more opportunities to manage their positions.

Advantages of Pair Trading

One significant benefit is reduced volatility. This type of trading offers more opportunities across various market conditions. You can also explore multiple currency pairs, allowing you to express your opinion on different markets. However, it’s wise to focus on the most popular and liquid pairs, like EUR/USD or USD/JPY, for more reliable trading.

Popular Currency Pairs for Pairs Trading

While many pairs are available, it's best to stick with the most traded ones. These include EUR/USD, GBP/USD, USD/JPY, and others. These pairs are more liquid, making them easier to trade. Less popular pairs, like USD/ZAR, may not offer the same benefits.

12 Best Forex Pairs to Trade

1. EUR/USD: The Heavyweight Contender

The EUR/USD is the champion of forex trading. It's the most liquid and actively traded currency pair, drawing traders from around the globe. Why? It offers tight spreads and significant price swings. Economic indicators from the Eurozone and the U.S. greatly influence its movements, creating strong technical trends and news-based reactions. For the best action, trade during the London and New York sessions, especially when they overlap.

2. USD/JPY: Where East Meets West

The USD/JPY pair is all about high liquidity and low spreads. It reacts to economic data from both the U.S. and Japan. The Japanese yen often becomes a haven in market uncertainty, making this pair a favorite for swing and carry traders. You'll find the best trading opportunities during the Asian and New York sessions.

3. GBP/USD: The Volatile Dance Partner

Known as "Cable," the GBP/USD pair is highly volatile and responds sharply to news from the U.K. and U.S. This makes it ideal for scalpers seeking large intraday movements but also requires careful risk management. Trade it during the London and New York sessions for the best results.

4. USD/CHF: Stability in Uncertainty

The USD/CHF pair is a stable option with lower volatility than GBP/USD. The Swiss franc acts as a safe-haven currency, and this pair often moves inversely to EUR/USD due to the Eurozone's proximity. The best time to trade it is during the London and New York sessions.

5. AUD/USD: The Commodity Connection

The AUD/USD pair is closely tied to the commodity markets, especially gold. China's economic health also plays a significant role, as Australia is a major trading partner. This pair tends to trend well and reacts predictably to macroeconomic events. For the best trading opportunities, focus on the Asian and early part of the London sessions.

6. USD/CAD: The Oil-Linked Pair

Oil prices strongly influence the USD/CAD pair due to Canada's status as a major oil exporter. U.S.-Canada trade data also has a significant impact. During low volatility periods, this pair can be range-bound. The New York session offers the best trading conditions for this pair.

7. NZD/USD: The Quiet Trend Follower

The NZD/USD pair is less volatile but exhibits strong trends. Dairy prices, agricultural exports, and overall risk sentiment drive it. This makes it a good choice for swing traders and those seeking longer-term technical trades. The best time to trade it is during the Asian session.

8. EUR/GBP: The Intra-European Play

The EUR/GBP pair helps trade intra-European fundamentals. It’s less volatile than other GBP pairs and is sensitive to Brexit developments and U.K. monetary policy. The London session is the best time to trade this cross pair.

9. EUR/JPY: The Volatility Combo

The EUR/JPY pair combines Euro volatility with the safe-haven yen, offering strong trends and significant price moves. It’s a good choice for technical traders looking for substantial price swings. Trade it during the overlap of the London and Tokyo sessions for optimal results.

10. GBP/JPY: The Beast of Forex

Referred to as "The Beast," the GBP/JPY pair is highly volatile with large pip movements. It’s ideal for experienced traders with strong risk control and breakout strategies. The best time to trade this pair is during the London session.

11. AUD/JPY: Riding the Risk Wave

The AUD/JPY pair strongly correlates with risk appetite and global markets. It’s sensitive to commodities, especially gold and iron ore, making it suitable for position trading based on macroeconomic outlooks. The Asian session offers the best trading opportunities.

12. EUR/CAD: The Diversified Play

The EUR/CAD pair provides diversification from U.S. dollar-dominated trades. It’s influenced by oil prices, Canadian, and Eurozone economic reports. Technical traders can benefit from its steady trends. The best time to trade this cross pair is during the London and New York sessions.

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How to Choose the Best Forex Pairs to Trade

Understanding Forex Volatility: The Heartbeat of the Market

Volatility is the pulse of the forex market. Knowing which currency is moving the most—and is likely to keep moving—can make all the difference. Think of it as the heartbeat of the market. Traders use indicators like Average True Range (ATR), Standard Deviation, and Bollinger Bands to gauge current volatility. These tools can help you identify which pairs are hot and which are not. Integrate this info into your trading decisions.

Backtesting Forex Strategies: Learn from the Past

Every currency pair has its quirks. For instance, the USD/CAD pair often moves with oil prices. Your strategy might perform differently across pairs because of these unique factors. Enter backtesting—a way to test your strategy risk-free. Say you have a system that goes long on EUR/USD when the RSI says it’s oversold. By backtesting, you’ll know under what conditions your strategy shines. You’ll get a feel for which pairs suit your trading style.

Timing is Everything: The Potential of Forex Trading Sessions

The forex market is open around the clock, five days a week. Activity in specific currency pairs follows the working hours of major economies like the U.S., the U.K., and Japan. There are four key trading sessions: Sydney, Tokyo, London, and New York. Each session has its vibe, with the New York, London, and Tokyo sessions often the most volatile. Understanding this schedule helps you decide which pairs to trade and when. For example, expect USD/JPY to be more active during the New York and Tokyo sessions.

Trading on News: Navigating Fundamental Events

News events like Non-Farm Payrolls (NFP) and CPI releases can shake up the market. Whether or not you like trading the news, these events often spike volatility. This can guide your choice of currency pairs. If NFP is on the horizon, pairs like EUR/USD, GBP/USD, and USD/JPY might see more action. Anticipate the ripples these events can create.

Mind Your Costs: Spread and Transaction Fees in Forex

Trading costs vary by broker and by what you’re trading. When many trades happen on one instrument, the market becomes liquid. This usually means lower costs, especially in terms of spread. Also, keep swap fees in mind. On Wednesdays, swap fees can triple. Always factor in these costs when choosing a pair to trade. It’s not just about making a profit; it’s about keeping it.

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2. Find Your Trading Groove

Before diving into forex trading, get clear on your goals and pick a trading style that aligns with them. There are three main styles: day trading is for those who want to buy and sell within the same day; swing trading is for those who can hold for days or weeks for short-to-medium-term gains; and position trading is for those who want to hold positions until they appreciate. Each has a different risk profile, so choose one that suits your temperament.

3. Choose the Right Broker and Platform

Picking a reputable broker is crucial. Researching brokers will save you money and stress in the long run. Brokers have different policies and ways of making a market. They can operate in over-the-counter, spot, or exchange markets. Your broker's platform should fit the analysis you plan to do. If you like Fibonacci numbers, ensure the platform can draw Fibonacci lines.

4. Shape Your Trading Strategy

Before entering any market, decide how you'll make trading decisions. Will you monitor economic fundamentals, track major news, or rely solely on technical analysis? Whatever you choose, it should be both consistent and adaptive. Keep up with the changing market dynamics.

5. Sync Your Entry and Exit Points

Many traders, especially beginners, can get confused by conflicting information from different timeframes. A buy signal on a weekly chart could be a sell signal on an intraday chart. Ensure they align if you're taking direction from a weekly chart and using a daily chart for timing. Wait for confirmation on both charts before making a move.

6. Measure Your Trading Expectancy

Expectancy tells you how reliable your system is. It compares the profit from winning trades to the losses from losing trades. Take your last ten trades and calculate: Expectancy = (% Won  Average Win) - (% Loss  Average Loss). This helps you see how well your method works and if it needs tweaking.

7. Master Risk Management

When trading forex, your money is at risk. Don’t use funds needed for regular living expenses. Focus on long-term outcomes rather than short-term losses. This mindset helps avoid emotional decisions. Determine your risk-reward ratio before trading: Potential loss / Potential gain. A ratio of 1:2 means risking $1 to earn $2. Use stop-loss orders to cap your risk per trade.

8. Analyze the Weekend

When markets are closed on weekends, study weekly charts for patterns or news that could affect your trades. You may see a double top pattern, and pundits suggest a market reversal. Analyze this news rationally before the trading week opens. Learn to be patient.

9. Keep a Trading Journal

A printed record is a valuable learning tool. Print a chart and list all reasons for the trade, including fundamentals. Mark your entry and exit points. Note any emotions that influenced your actions. Did you panic? Get greedy? Feel anxious? Objectifying your trades helps develop the mental control to execute your system, not your emotions.

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