WHAT ARE THE BEST FOREX PAIRS TO TRADE?
Thanks to the markets being so accessible, traders can trade a massive range of currencies including major pairs, minor pairs and even exotic pairs. With all of these choiced, it can be difficult to choose which pairs you should be focusing your time on as a trader. To make things more complicated, many strategies will work on some currency pairs, but not be profitable on others.
In this article, we’ll look at exactly which forex currency pairs you should be trading and why. So, let’s get into it…
The Best Forex Pairs For Forex Trading
In forex trading, strategy selection is incredibly important. However, currency pair selection is something often overlooked by traders, despite it being equally critical.
There are many strategies that will work on specific currency pairs but be entirely unprofitable on others. If you were only trading the unprofitable pairs, you’d believe your strategy was not profitable. If you were trading both profitable and profit currency pairs, your results will be diminished by the losses on the unprofitable pairs. Therefore, knowing how to select a great trading pair for you and your strategy is essential.
GBPUSD and EURUSD
Largely speaking, GBPUSD and EURUSD are regarded as the best forex pairs to be trading, both for advanced trading and newbie traders. There are several reasons for this…
These pairs are very high in trading volume. This means there will be a lot of trading opportunities on all time frames.
Both pairs have incredibly low spreads, regardless of the broker or prop firm that you work with.
Both of these pairs often trend. They go through regular market cycles of ranging and trending markets.
Both GBPUSD and EURUSD frequently have economic news, meaning periods of consolidation don’t last long and many opportunities are presented by looking at the economic data, alongside technical analysis.
Typically, if you have a profitable trading strategy, it will be profitable on these two pairs. There are exceptions to this rule, but testing with these currency pairs is always a good starting point.
Many of our funded prop firm traders utilise these two currency pairs as a part of their portfolio.
What Makes A Good Forex Currency Pair?
A good forex pair can be identified by these following traits:
Low Spreads – Low spreads are incredibly important for intraday traders, scalpers, and day traders. It’s difficult to remain profitable for intraday traders if you’re paying multiple pips spread on every trade.
Trending Markets – Good forex pairs are usually trending by nature. Not constantly trending, but go through the usual market cycles of ranging and trending.
Economic News Frequently – Frequent economic news is a sign of a potentially good forex pair to trade. Pairs with no economic news typically stagnate and consolidate.
High Trading Volume – Usually good forex pairs will have a high trading volume per day, which can present great trading opportunities.
Profitability With Your Strategy – Most importantly, if a trading strategy is profitable on a certain currency pair, then it’s a good pair for you to be trading!
What Makes A Bad Forex Pair To Trade?
There are a few factors that contribute to a ‘bad’ forex pair to trade:
High Spreads – Large spreads can make it difficult to profitably trade a currency pair. This is less important for position and swing traders.
Low Trading Volume – With low trading volume, spreads will be larger and moves within the market will be less frequent but more aggressive. This can make it incredibly hard to profitably trade these pairs.
Unprofitable With Your Strategy – Any pair that doesn’t work for your strategy is a bad pair. Just because you aren’t profitable in a test on one pair, doesn’t mean your strategy isn’t profitable on others!
Consolidating Constantly – Many exotic and minor currency pairs consolidate or range constantly, providing very free trading opportunities. For example, EURCHF is known for moving in ranges, as well as AUDNZD. These are very challenging to trade.
Can You Only Trade ‘Good’ Forex Pairs?
Ultimately, you can trade any forex pairs. What you need to ascertain is whether your strategy is profitable on the other currency pairs. Many trading strategies that require high levels of trading volume will not work on exotic trading pairs, for example.
If you’re scalping or day trading, you need access to extremely tight spreads. You’re going to see much larger spreads on currency pairs like minors and exotics, due to the decreased trading volume. This will render these pairs unprofitable for the large majority of intraday traders.
So, how do you know if your strategy is profitable on a specific trading pair?
It comes down to testing. If possible, you want to be back testing your trading strategy objectively on as many pairs as possible, gathering as much data as you can. By doing this, you may be able to expand your trading strategies to trading a portfolio of 7 pairs, rather than just 2, for example. Providing you can trade these currency pairs simultaneously, you should increase your profits doing this. It’s worth caveating that point by mentioning that trading heavily correlated pairs at the same time will greatly increase your risk. For example, selling GBPUSD, GBPCHF, GBPAUD and GBPNZD at once increases your risk 4x. Even though your strategy may be profitable on these pairs, this is still a massive risk to consider.
In Summary – What Are The Best Forex Pairs To Trade?
In conclusion, the best forex pairs to trade are currency pairs with high trading volume, frequent economic news, typical market cycles of consolidation and ranging markets, low spreads and most importantly – profitable with your specific trading strategy.
It’s worth testing your strategy on as many pairs as possible to gauge profitability. If you’re looking to become a funded forex trader, work with Lux Trading Firm today!
About Company
We are a leading proprietary trading firm based in London (UK), specializing in supporting experienced prop traders.
Our commitment is to help traders excel and provide the tools and capital they need to compete in a marketplace defined by change and disruption.
We are focused on seeking out trading and investment opportunities to grow our capital in the global financial markets.
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