Forex or foreign exchange market is an international market where currencies are traded. It is the largest and most liquid market in the world, with a daily turnover of over $5 trillion. With this large amount of trading volume, forex trading can be a lucrative business for those who know how to navigate the market.
One of the key aspects of forex trading is choosing the right currency pairs to trade. There are dozens of currency pairs to choose from, but not all of them are equal. In this article, we will discuss which forex pairs are best for trading the market.
Majors
The major currency pairs are the most liquid and widely traded pairs in the forex market. They are made up of the US dollar (USD) and the currencies of the world’s largest economies, including the euro (EUR), Japanese yen (JPY), British pound (GBP), Swiss franc (CHF), Canadian dollar (CAD), and Australian dollar (AUD).
The most commonly traded major currency pairs are EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, and USD/CAD. These pairs are highly liquid, which means there is always a buyer and seller for these currencies, providing traders with ample opportunities to enter and exit trades.
The major currency pairs are also highly volatile, which means they can move quickly in response to economic or political events. This volatility can provide opportunities for traders to make profits, but it also increases the risk of losses.
Exotics
Exotic currency pairs are made up of one major currency and one currency from an emerging or developing economy. These currencies are less liquid and less widely traded, which makes them more volatile than the major pairs.
Examples of exotic currency pairs include USD/MXN (US dollar/Mexican peso), USD/BRL (US dollar/Brazilian real), and USD/ZAR (US dollar/South African rand). These pairs are often characterized by wider bid-ask spreads, which means traders may face higher transaction costs.
Although exotic currency pairs can offer higher potential returns, they are also riskier than major pairs. Traders should have a good understanding of the economic and political factors that can affect these currencies before trading them.
Crosses
Cross currency pairs are made up of two major currencies, but they do not include the US dollar. These pairs are not as widely traded as the major pairs, but they can still offer opportunities for traders.
Examples of cross currency pairs include EUR/GBP (euro/British pound), EUR/JPY (euro/Japanese yen), and GBP/JPY (British pound/Japanese yen). Traders who specialize in a particular cross currency pair may have an advantage because they can develop a deeper understanding of the factors that affect these currencies.
Conclusion
Choosing the right currency pairs to trade is an important part of forex trading. Major currency pairs are the most liquid and widely traded, making them a good choice for traders who want to enter and exit trades quickly. Exotic currency pairs can offer higher potential returns but are riskier than major pairs. Cross currency pairs can offer opportunities for traders who specialize in a particular pair.
Ultimately, the best currency pairs for trading depend on a trader’s individual goals and risk tolerance. Traders should conduct thorough research and analysis before entering any trades, regardless of the currency pair they choose.
