Best Currency Pairs to Trade: Majors, Minors, Crosses
What currency pairs are the best to trade?
By looking just at the volumes for the global trades for each currency pair, the simple answer is: “trade the currency pairs that have the highest trading volume”.
As per the available numbers reflected in the chart, there are 8 currency pairs totaling approximately 72% of the volume of Forex transactions. The percentages might vary from time to time but the main idea here is that the most traded currency pair is EUR/USD, followed by USD/JPY and GBP/USD.
The advantage of trading one of those currency pairs is that the spreads and therefore the cost of trading are smaller and there is a high volatility allowing trader to apply day trading or scalping strategies.
Currency pair quotation
In Forex market the price is quoted for a pair of currencies, as a comparison: one currency is the “base currency” and the other one one is “quote currency”. If you buy a currency pair, you buy the base currency and sell the quote currency. On the contrary, when you sell the currency pair, you sell the base currency and receive the quote currency.
The price is quoted by most brokers with either three or five decimals, depending on the currency pair.
Examples: EUR/USD = 1.29426 – this means that one Euro can be bought with 1.29426 US Dollars (or the reverse – by selling one Euro it will buy 1.29426 US Dollars
USD/JPY = 106.977 – this means that one US Dollar can be bought with 196.977 Japanese Yen
A “pip” is the unit of measurement used in Forex to show changes in price of a currency pair. A pip is the fourth decimal for currency pairs where the price is quoted in five decimals or the second decimal for pair quoted with three decimals.
Pips are used to calculate how much profit is made or lost on a trade, related to the price of the currency.
Example: if you enter a long position on GBP/USD at 1.62000 and it moves to 1.66250 by the time you close your position you have made a profit of 25 pips.
Currency Pairs Trading Size
– Standard lot size: 100,000 units of the base currency
– Mini lot size: 10,000-unit (1/10 of the standard lot)
– Micro lot size: 1,000-unit (1/100 of the standard lot)
When you trade any kind of financial instrument there are always costs involved. Every time you buy and sell a currency pair you pay the spread. The spread is the difference between the buying price and the selling price.
Broker’s quotes display two prices/rates : a “Bid” rate (a lower rate) and an “Ask” rate ( a higher rate).
BUY ( enter a long position or exit a short position) : you must pay the ‘ask’ rate
SELL (enter a short position or exit a long position): you will be getting the ‘bid’ price
Major Currency Pairs
The major currency pairs sometimes referred to as “the majors” are in fact the most frequently traded currencies in the world, with USD on one side of the currency pair. The list normally including:
- Euro EURUSD
- Japanese Yen USDJPY
- Great British Pound GBPUSD -also known in fx jargon as ‘pound’
- Canadian Dollar USDCAD – also known in fx jargon as ‘loonie’
- Australian Dollar AUDUSD – also known in fx jargon as ‘aussie’
- New Zeeland Dollar NZDUSD – also known in fx jargon as ‘kiwi’
- Swiss Franc USDCHF – also known in fx jargon as ‘swissy’
Minor Currency Pairs or Crosses
Currency pairs that do not contain the USD are known as cross-currency pairs or simply as the “crosses.”
Major currency crosses are also known as “minors.” The most actively traded crosses are derived from the three major non-USD currencies: EUR, JPY, and GBP.
Exotic Currency Pairs
Exotic currency pairs are made up of one major currency paired with another currency such as Singapore, Norway, Denmark, Brazil, Mexico, or Hungary.
Depending on your Forex broker you may be able to trade exotic currency pairs so it’s good to know what they are. However, be aware that these pairs aren’t as heavily traded as the ‘majors’ or ‘crosses’ and their spreads or other transaction costs are usually much higher.