Currency pairs are the combination of currencies of two countries, with each currency having a value and the relationship of those values contributes to the price of the pairs. Although there are hundreds of currency pairs to choose from, there are some of the most traded currency pairs in the world. We can also say that there are some best forex pairs to trade in the market.
Now, as a beginner forex trader, a question that might come across your mind is how come there is a list of most popular currency pairs? Well, the answer to this question lies behind the following factors:
- Liquidity
- Volatility
- Time of the day
So, now that you know why there are some currency pairs that are considered as the best forex pairs to trade, let us now jump to the list of those pairs.
Top 8 Popular Currency Pairs to Trade on Forex
For better forex trading you should know the popular currency pairs. The top eight popular currency pairs are :
- EUR/USD
- USD/JPY
- GBP/USD
- USD/CNY
- USD/CAD
- AUD/USD
- USD/CHF
- EUR/GBP
1. EUR/USD
The most traded currency pair in the world is the EUR/USD, because of the global prominence of the economies of the European single market and the United States. It made up 22.7% of overall market share in a recent survey. The daily high volume and liquidity of this pair ensure tight spreads for traders.
The EUR/USD tends to have a positive correlation with the British pound/U.S. dollar (GBP/USD). This is due to the positive correlation of the euro, the British pound, and the Swiss franc.
2. USD/JPY
The next best forex pair to trade for beginners is the USD/JPY, with high liquidity and a market share of 13.5%.
It tends to be positively correlated to the USD/CHF and the U.S. dollar/Canadian dollar (USD/CAD) currency pairs. This relationship is due to the U.S. dollar being the base currency in all three pairs.
USD/JPY also responds to changes made to interest rates by the Bank of Japan.
3. GBP/USD
Trading in the GBP/USD currency pair represented 9.5% of the forex market share.
The popularity and volume of trading in this pair reflect the strength of the British and U.S. economies.
The GBP/USD tends to have a negative correlation with the USD/CHF and a positive correlation with the EUR/USD.
4. USD/CNY
The USD/CNY currency pair represents the U.S. dollar and the Chinese yuan. Its market share grew to 6.6% from its previous 4.1% of market share in daily forex trades. This growth in its daily forex trades makes it the fourth top traded currency pair in our list.
The U.S.-China trade relationship has been a volatile one, traders interested in the USD/CNY should maintain awareness of developments in the relationship between this currency pair, as they could affect the pricing of the pair.
5. USD/CAD
Market share for the USD/CAD currency pair increased to 5.5% from 4.4% in the previous three years.
Interest rates in the U.S. and Canada affect the price of this pair, reflecting the effects on the individual currencies. As oil is a major economic driver for Canada, its price will affect the price of Canadian currency. This in turn can have an impact on the currency pair.
The USD/CAD tends to be negatively correlated with the AUD/USD, GBP/USD, and EUR/USD pairs due to the U.S. dollar being the quote currency in these other pairs.
6. AUD/USD
The AUD/USD currency pair reduced to 5.1% of the forex market share, compared to its previous 5.4%.
It tends to have a negative correlation with the USD/CAD, USD/CHF, and USD/JPY.
The value of Australia’s currency is closely tied to the value of its exports in its economy and a downward movement in that value could affect the AUD/USD currency pair value. The relationship between the interest rates set by the respective central banks can affect the currency pair price, as well.
7. USD/CHF
Another best forex pair to trade on forex is the USD/CHF currency pair. It is a combination of the US dollar and the Swiss franc and is commonly known as the ‘Swissie’. USD/CHF is a popular currency pair because the Swiss financial system has historically been a haven for investors and their capital.
As a result, traders often turn to CHF during times of increasing market volatility, but the Swiss franc will typically see less interest from traders during times of greater market stability. During times of increased volatility, the price of this pair would drop as CHF strengthens against the USD after experiencing increased investment.
USD/CHF still accounted for 3.6% of all daily forex transactions.
8. EUR/GBP
The pairing of the Euro and the British pound in the EUR/GBP pair is often seen as one of the most difficult pairs to make accurate price predictions for. This is because EUR and GBP have had a historical link given the proximity of the UK to Europe.
Despite the supposed difficulties in predicting its movements, EUR/GBP transactions still made up 2.0% of daily trades, making it the eighth most traded currency pair in the world in our list.
In recent years, this currency pair has fluctuated in price quite unpredictably – primarily due to the uncertainty surrounding Brexit. It is important to have a risk management strategy in place before opening a position in a volatile market.
How to Trade Best Forex Pairs?
Forex trading comes with the ups and downs of profits, and also requires proper strategy and understanding of the market. Here is how you can get started with forex trading:
- Understand the basics
- Create a proper strategy
- Choose a reliable broker
- Start practicing with a demo account
- Begin with a small capital
- Grow gradually and keep learning
Conclusion
The forex market gives all traders, including retail investors, the potential to make money trading currency pairs. Understanding the fundamentals that drive currency pair pricing is essential to your success.
The best currency pair to trade for you will ultimately depend on your strategy and interest. Most traders stick to the currency pairs that have the most volume and liquidity which often include the major currency pairs that are crossed with the US dollar, such as EUR/USD, GBP/USD, USD/JPY, and USD/CNY.