
If you are new to the world of Forex Trading and you are learning to trade, you will certainly ask yourself: which forex pairs to trade? There are so many currency pairs that this is not a simple choice, so the correct criteria are needed to choose the best currency pairs.
Spread
The first criterion you should take into account is the Spread. In a previous article, we explained what Spread is. To profit, you will need the currency to move in the right direction ie above the spread. The EUR/USD currency pair has a small spread. The smaller the spread, the better, as it will be necessary to make a smaller movement to cover the cost of buying or selling, and make a profit.
Active Currency
It is important to know when currency markets are open before choosing currency pairs. For example, if you want to trade the Australian Dollar (AUD) and the Japanese Yen (JPY), you will need to know the time the Asian session is open as that is when this pair is most active. The EUR/USD is most active when European and US sessions overlap. In this article, you will know Best Time To Trade Forex.
Volatility
Profits in Forex Trading occur when currencies move. Regardless of whether they move up (buy) or down (sell), they need to move for you to make a profit (preferably with a smaller spread so that profit is reached faster). Therefore, you might want to investigate how far a currency pair moves in a given period, and compare it to another currency pair. The pair that has the greatest movement is the one that generates the greatest profit (and therefore promotes the greatest risk of losses), not necessarily the one that should be chosen.
This decision goes through defining which type of trader you want to be: a long-term trend trader can choose less volatile currency pairs, a short-term trend trader can choose more volatile currency pairs.
The best
Talking about Forex is talking about profit. This is either buying low and selling high, or selling high and buying low. The fact is that, for this purpose, the six most traded currency pairs are Pound Sterling and Dollar (GBP/USD), Euro and Dollar (EUR/USD), Dollar and Japanese Yen (USD/JPY), Dollar and Swiss Franc (USD/CHF), US Dollar and Canadian Dollar (USD/CAD) and Australian Dollar and US Dollar (AUD/USD).
There are traders who claim that the EUR/USD currency pair is the most predictable and the least volatile, that is, it is a currency pair that generally “respects” its main support and resistance points. They also claim that when the EUR/USD pair is overbought, most of the time, it retreats and when it is oversold, too. Of course, not everyone is of the same opinion, but they agree that the EUR/USD is a good option to trade.
General
A macro-environmental analysis must be made: the currencies of countries with stable governments, with respected central banks and with lower levels of inflation must be chosen. When choosing the currency pair, it is also important to know that the economic factors that affect nations vary from country to country. For example, some countries are heavily dependent on the export of a particular product. This means that a given currency will behave differently from others because it is linked to the price of one commodity and the other not. And conditions required for this purpose, such as tourism, industry or agriculture, will have to be favorable for the currency to perform well.
Conclusion
If you are a new trader, and you don’t know which forex pairs to trade, the best option is to start with the least volatile and most liquid pairs (those that are traded more day to day) as you will be in a lower risk environment. In this case they are: EUR/USD or GBP/USD, which also have a low spread because they are heavily traded.