Which Are The Best Forex Pairs To Trade?

Forex pairs are the basis of foreign exchange trading. The currency pair refers to the two currencies you select to run a trade. For instance, if you choose to exchange GB pounds for US dollars, your currency pair is GBP/USD

In theory, you could trade all existing currency pairs, but in practice forex trading restricts itself to the currencies of the most important financial centers. This does not always mean the most politically influential countries or the biggest ones. Switzerland, for example, is small, but it plays a major role in international finances because of the significance of Swiss banks.

Major forex pairs

There are six major currency pairs, which represent ninety percent of the money traded on the foreign exchange markets.

These forex pairs are:

EUR/USD: euro / US dollar

GBP/USD: British pound / US dollar

USD/JPY: US dollar / Japanese yen

USD/CHF: US dollar / Swiss franc

AUD/USD: Australian dollar / US dollar

USD/CAD: US dollar / Canadian dollar

The GBP/USD currency pair is also known as Cable. The origins of this nickname go back to the times when a cable running under the Atlantic synchronized the rate of this currency pair between the New York and London markets on both sides of the ocean.

Are those the only forex trading pairs?

Some forex traders also trade other combinations of these major currency pairs or other currencies not included in the most significant forex pairs like the New Zealand dollar. But if you are starting out, it is better to limit yourself to the six major forex pairs.

The American dollar is the most important forex currency and, according to a 2007 report, it is used in 85% of currency trades. The second currency in importance, the euro, is used in 37% of trades. It is followed by the yen, British pound, Swiss franc, Australian dollar and Canadian dollarin that order.

If you are wondering why they amount to more than hundred percent, the answer is that there are always two currencies in a trade.

Which currency pairs are the best for beginners?

If you are a beginner forex trader, most experts recommend the EUR/USD pair. It is very easy to find detailed information about these currencies and the high liquidity of these forex pairs results in a smaller spread, which means that you will have lower costs.

Unless they have special knowledge about certain fields of knowledge, newbies should not include some of the other currencies with marked distinguishing features in their forex strategies.

For instance, Canada is an exporter of oil, therefore, the value of the Canadian dollar depends strongly on the price of oil. On the other side of the coin, we have Japan, which is a large importer of oil. The price of oil can also have a strong influence on the Japanese yen, in this case for the opposite reasons.

When you are starting out, you should not trade too many different forex pairs. The best you could do is to begin with the major EUR/USD pair and not try any other currency pair for a few months. If you are a novice trader, the GBP/USD market could be the second choice of the most important forex pairs.