A currency pair is the price of one currency relative to another one. Currencies are always traded in pairs, so if you buy one currency, you automatically sell another currency. People trade currency pairs on the Forex market as usual.
Most often, traders open positions with EURUSD and GBPUSD. But there is a large number of other currencies and metals available for trading. So which currency pairs are the best to trade on forex and which instruments are better to exclude from a portfolio?
Currency pair: how to read
If you look at prices in your trading platform, you will find a large number of currency pairs from the online Forex market.
Each currency has an ISO symbol from 3 characters.
- USD — US Dollar
- CHF — Swiss Franc
- EUR — Euro
- GBP — British Pound, etc.
Suppose you believe that the euro is weakening due to inflation and easing of the monetary policy by the ECB. You think that the US dollar will strengthen against the euro because the Fed is more likely to tighten the monetary policy, while the European Central Bank supports a freer policy.
The currency pair that you are interested in is the euro against the US dollar, that is EUR/USD.
In the online trading platform, you’ll find live bets near currency pairs which you can trade at. Bid is the price at which you can sell a currency pair, and Ask is the price at which you can buy it. They are also known as the sale price and the purchase price. The market spread is the difference between the two prices.
Since you think that the euro will get worse and the US dollar will strengthen, you want to sell the euro and buy the US dollar. If you are right, and the euro will weaken and the EUR/USD currency pair will go down. So, you need to sell a currency pair, if you believe that the exchange rate will decline, and buy if you expect it to grow.
What currencies are better to trade?
EURUSD has the highest trading volume, so it is considered to be the most liquid pair. However, you will not have any problems with liquidity in the Forex market, because it is a huge market. It does not look like the stock market, where sometimes you cannot find a buyer for stocks that you have bought and now you want to sell.
GBPJPY is the most active and volatile currency pair. EURJPY ranks second in terms of volatility and activity. GBPJPY and EURJPY price charts, as a rule, move in the same direction. This means that when one of the pairs goes up, the other also goes up and vice versa. Traders prefer to use the GBPJPY and EURJPY currency pair for trading as usual.
It is believed that any currency pair that provides a strong and sharp signal at the moment is the best currency pair to trade. There are some traders who fall in love with some kind of currency pair and try to trade only it. It is not right. You limit yourself by ignoring the free features that the Forex market provides you. There are always several currency pairs in the Forex market that you can successfully trade. Why should you refuse all of them and focus on just one pair? There is an opinion that traders should focus on one currency pair and improve on it. This is another crazy idea. Currency pairs are not different topics that you are assigned to study at work.
The same rules and methods can be applied to all trading currency pairs. The breakthrough of the support level is a sell signal for any currency pair. Find the real support level in the currency pair and open a short position after breaking it. It does not matter what kind of currency pair it is. You earn money on it. Of course, do not forget to set stop loss and take profit.