What are the Best Currency Pairs to Trade ?

If you're new to forex trading you'll know that there is a lot to learn, and one of the decisions you are faced with is knowing which currency pairs to trade. Should you concentrate on one or two or should you be prepared to trade any number of different currencies? Well different traders will have different opinions on this and the truth is that there is no right or wrong answer. Every trader is different and will have their own style of trading, and this may incorporate focusing just on one currency, such as the GBP/USD for example, or may involve watching a number of pairs and waiting for a good set-up to occur on any one of them.

For example a trader may have their own set of rules in that they will always wait for particular technical indicators to be in agreement before entering a position. They apply this to every single currency pair, knowing that they have a high probability of the trade being a profitable one.

An alternative approach, and one favored by myself, is to only concentrate on the major currency pairs. This is because they are the most widely traded, which means that with so many traders and financial institutions watching and trading them, they conform even better to technical analysis, which after all is effectively a means of displaying human behavior. Another reason I favor only trading the major currencies is because they generally have the tightest spreads which is important because over time these higher spreads can really make a dent in your profits, and if you're a short term trader or scalper they can make trading extremely difficult.

For example if you trade the EUR/USD you will generally be looking at a 2 or 3 point spread whereas if you trade one of the minor pairs such as the EUR/CAD for instance, you could be looking at a 8 or 10 point spread.

So what are the major currency pairs?

Well the four most widely traded pairs are the GBP/USD, EUR/USD, USD/JPY and the USD/CHF. I personally trade the first three pairs but you may prefer to focus on just one pair. This approach definitely has it's merits because you can learn a particular pair's characteristics and behavior which will allow you to easily identify the same patterns that occur over and over again.

Another factor to consider is your local time and what hours you are available to trade. You ideally want to trade currencies that are most widely traded during the hours that you are at your computer. So to sum up, there aren't really any best currencies to trade as all pairs are potentially profitable, but the major pairs have tighter spreads and are the most actively traded which means they conform extremely well to technical analysis, which is why I personally only focus on trading these currencies.

James Woolley runs a forex trading blog where you will find free forex trading strategies plus his review of Forex Trading Machine