If you are willing to unlock the profit potential in the trading world then you are at the right place. In this short writing, we will discover the top forex trading pairs that are expected to dominate the market now. These forex pairs depict a wealth of opportunities from beginners to expert traders. From major currency pairs like GBP/USD and EUR/USD to exotic pairs like USD/TRY and AUD/NZD, we will go deep into the factors that derive these pairs and provide insight of how to get profitable traders. Whether you are a beginner trader who is just entering the market, or already profitable trader, understanding the dynamics of forex trading pairs is essential to enhance your profitability. So, let’s analyze the more exciting currency pairs that can bring you profitability in the forex market.
Understanding Forex Currency Pair
Before we analyze the best forex trading pairs, it is essential to understand how forex trading pairs work. In forex trading, currencies are traded in pairs. Each pair has two currencies, one is called base currency and the other is called quote currency. The base currency is the one that you are interested to buy and the quote currency is the one that you will use to buy the base currency. For example, in USD/AUD currency pair, the USD is the base currency that you are going to buy and the AUD is the quote currency that you will pay to buy the USD. 3
While trading forex pairs, you are speculating on the exchange rate of two currencies. In the above example, if you think the USD dollar is going to strengthen and the AUD is going to weaken against USD dollar then you will go for buying the USD/AUD. On the other hand, if you think that USD is going to weaken against AUD dollar then you will go for selling the USD/AUD pair.
It is essential to mention here that forex trading pairs are affected by many factors. These factors may include geopolitical events, economic indicators and market sentiments. You are also required to understand these factors and their impact on the currency pair.
Factors to Consider when choosing Best Forex Trading Pairs
Several factors should be considered when choosing the best forex trading pairs. Some of these factors include liquidity, volatility, and correlation. These factors can significantly impact on your profitability when trading the best forex trading pairs.
Liquidity refers to the volume of the trading pair. If a pair is more liquid it means it has higher trading volume. High liquid pairs are easy to trade and have narrow spread. Narrow spread mean that there is less different between then ask and sell price. On the other hand, if a pair is not liquid, it is difficult to trade. It will also have wider spread means there will be greater difference between the ask and sell price.
Volatility is another important element to consider. Volatility refers to the price fluctuations of currency pairs. Higher volatile pairs come with higher profitability and also with higher risks. High volatile pairs can give you quick but unstable returns. On the other hand, low volatile pairs can give you low but steading returns. The risk of trading the low volatile pairs is also low.
Correlation depicts the relationship between two currency pairs. If the pairs have positive correlation, it means they will move in the same direction. If the currency pairs have negative correlations, they will move in the opposite direction. Understanding the correlation between currency pair is essential to mange risk and diversify your portfolio.
The Best Forex Trading Pairs
1. Analysis of EUR/USD Trading Pair
The EUR/USD trading pair is the most famous, most liquid and heavily traded forex pair in the forex market. It is also considered as the benchmark for forex trading. The Euro (EUR) depicts the Eurozone, while US Dollar (USD) depicts the United States. This pair is influenced by many factors like interest rates, economic data and political development.
In current year, the EUR/USD pair has experienced a significant volatility. The key factors that will influence its performance in the coming period is the Eurozone’s economic recovery and US Federal Reserves monetary policy. The global trade tension will also play a key role in shaping EUR/USD exchange rate.
2. Analysis of USD/JPY Trading Pair
The USD/JPPY is one of the most actively traded pair in forex market. It represents the exchange rate between US Dollar and Japanese Yen. This pair is highly affected by economic indicators, monetary policy and geopolitical events.
In recent year, the pair is highly influenced by Bank of Japan’s monetary policy and global market sentiments. Japan is the world’s third largest economy and The United stated is the world’s largest economy, so, the developments in United States and Japan heavily impact this pair.
3. Analysis of GBP/USD Trading Pair
The GBP/USD pair depicts the exchange rate between the British Pond (GBP) and the US Dollar (USD). This is commonly known as Cable. This pair is also influenced by economic data, political development and market sentiments.
Due to Brexit, there is a significant volatility in GBP/USD pair in recent years. The post Brexit relationships between European Union and British, trade negotiations and political events also have a great affect on the performance of this pair.
4. Analysis of AUD/USD Trading Pair
The AUD/USD pair depicts the exchange rate between Australian Dollar (AUD) and US Dollar (USD). This pair is highly affected by commodity prices, interest rate and economic data of both the countries.
In recent years, this pair is likely to be influence by economic recovery, China’s economic performance, and the Reserve Bank of Australia’s monetary policy. As Australia is a main exporter of commodities, so any shift in global demand and commodity prices may impact the pair significantly.
5. Analysis of USD/CAD Trading Pair
The USD/CAD pair represents the exchange rate between US Dollar (USD) and the Canadian Dollar (CAD). This pair is affected by factors such as economic data, oil prices and monetary policy decision by both countries.
In recent years, this pair is expected by be affected by oil price movements, the US economic recovery and the Bank of Canada’s monetary policy. As Canada is one of the world’s largest oil producers, so any impact in oil prices and demand may hugely impact the Canada’s economy and hence this pair.
Tips for Successful Forex Trading with these Best Forex Trading Pairs
So far, we have analyzed the best forex trading pairs to trade. Now, let’s see some of the tips to help you maximize your trading profits.
You should keep track of economic indicators as any change in these indicators will reflect in the trading pair. Keep an eye on the announcements of central bank, and the geopolitical events that can have any impact on currency pair.
Use Technical Analysis
As the fundamentals will tell you which pair to trade, the technical analysis will tell you when to trade a currency pair. See the price trends, support and resistance level and entry and exit point to take the best entry in the forex pair.
Practice Risk Management
Risk management is an important aspect of any kind of trading. Do not take trade without stop loss order. Keep your position size small so that daily fluctuation may not impact on your trading capital. Develop your risk management strategies as per your risk tolerance level and trading personality.
Diversify your Portfolio
Do not put all of your eggs in a single basket and also do not make so many baskets that it will become difficult to manage. Always optimize your portfolio and diversify it to a level that you can handle it properly.
Adapt to Market Conditions
The purpose of forex trading is to get the profits not to satisfy the ego. Change your trading position with the changing market sentiments. Don’t let your ego or emotions to derive your trading strategies. Always trade on logic and follow the market sentiments.
The forex market can provide ample opportunities for traders to unlock their profit potential. Understating the best forex trading pairs and the factors that derive these pairs is extremely important for taking the informed decisions. Utilize all the publicly available information, use technical analysis and stay away from the rumors. Diversify your portfolio and apply risk management strategies to stay ahead of the market. Trade with proper stop loss and position size. By following the above-mentioned strategies and the information on the best forex trading pairs, you can clearly have an edge in the forex trading world.