What Makes a Currency Pair the “Best” for Trading in Today’s Economy?

Trading currencies is easy, right? 

Pick a pair, watch some charts and trade. But the truth is, choosing the right currency pair can make or break your trading game.

Let’s get into what makes a currency pair the “best” for traders today - and no, it’s not just the most popular.

Why Currency Pairs Matter

A currency pair is two currencies trading against each other. For example, EUR/USD means you’re trading the euro against the US dollar.

Why does this matter? Because the currencies you trade decide how volatile your trades are, how much it costs you to trade and how easy it is to buy or sell.

Not all currency pairs are for all traders. That’s why finding the “best” pair is a mix of facts, strategy and personal preference.

1. Liquidity: The Lifeblood of Forex

Liquidity in this context refers to how easily you can buy or sell a currency pair without moving the price.

• Major pairs, such as the EUR/USD or USD/JPY, are super liquid. This simply means that they are traded a lot, and you won't get stuck waiting for someone to take the other side of your trade.
• Exotic pairs, such as USD/TRY for the Turkish lira and USD/ZAR for the South African rand, are considered more challenging to trade. They are less liquid; therefore, trading may take longer or be more expensive.

Tip: Beginners should not divert their attention from major pairs. The low cost and high liquidity make it easier to learn without risking too much.

2. Volatility: A Double Edged Sword

Volatility is the magnitude of movement in a currency pair. Large price swings pose greater risks but also greater rewards.

Here’s a comparison of how different pairs behave:

Fact: According to a 2022 BIS report, EUR/USD accounts for nearly 20% of all forex trades. It’s less volatile, making it a safe choice for most traders.

3. Economic Stability: The Secret Sauce

Currencies are attached to the economies behind them. A stable economy usually means a stable currency.

• The US dollar, euro and yen are backed by big economies. That makes them the best currency pairs to trade.
• On the other hand, currencies like the Venezuelan bolívar are attached to struggling economies. Trading them is risky because their value can change overnight.

Example: When Brexit happened the British pound (GBP) went crazy. Traders who were prepared made a killing, others lost a lot.

4. Time Zones: Trade When It’s Busy

Forex markets are open 24/7 but not all hours are created equal. Liquidity is highest when London and New York overlap.

Here’s a breakdown of the trading sessions:

1. Asian Session (Tokyo): Best for JPY pairs.
2. European Session (London): Most active for EUR and GBP pairs.
3. North American Session (New York): Best for USD pairs.

5. Emerging Markets: Hidden gems or landmines?

Emerging market currencies like the Mexican peso (MXN) or South African rand (ZAR) are hot.

They offer higher returns due to interest rate differences but come with more risk.

Fact: Between 2020 and 2022 the USD/INR (Indian rupee) pair saw a 15% increase in trading volume, India’s growing economy.

Should you trade them?

• If you’re an advanced trader, yes.
• If you’re just starting, stick to the majors.

How to Choose the Best Currency Pair for YOU

Choosing the “best” currency pair isn’t like choosing a one-size-fits-all shirt. It depends on your experience, trading goals and even when you can trade.

Let’s break it down so you can find a pair that fits your style.

Are You a Beginner? Stick with EUR/USD

If you’re new to forex, EUR/USD is a good place to start. Why?

• It’s the most traded pair in the world so you’ll always find plenty of buyers and sellers.
• The price movements are more predictable than exotic pairs.
• Spreads (the cost of trading) are lower because of its high liquidity.

Why it’s good for beginners: You can focus on learning without worrying about wild price swings or complicated economic factors. Plus there’s tons of analysis online for this pair.

Want Low-Risk Trades? Try USD/JPY

Not everyone likes a rollercoaster ride when trading. If you want a pair with low volatility, USD/JPY might be your best buddy.

• This pair moves slowly and steadily because both currencies are from stable economies.
• It’s less likely to experience sharp price changes due to political events or market shocks.

Pro Tip: Low volatility pairs are perfect if you prefer safer, long-term trades over quick profits. They also reduce stress if you don’t want to monitor your trades all the time.

Looking for High Returns? Try Emerging Market Pairs

If you want bigger profits and are willing to take more risk, USD/INR or USD/ZAR might be for you.

• These pairs have bigger price movements so more opportunities to profit.
• They’re influenced by high interest rates which can work for you if you hold positions for longer (this is called “carry trading”.

Warning: These pairs are very volatile. For example political instability or unexpected news can cause big price swings. If you can’t handle that, stick to the majors.

Conclusion 

The best pair is the one you’re comfortable trading. If you’re new, EUR/USD is your safest bet. It’s stable, predictable and easy to trade.

But if you’re more experienced, try GBP/JPY or USD/INR for more excitement.

At the end of the day, no pair is perfect. Just pick one that fits your strategy and goals.

So, what’s your choice?