How to Trade Forex Like a Pro: Top 10 FX Pairs Revealed
If you want your skills as an investor to reach another level, learning how to trade forex is a great place to start.
Forex trading, or foreign exchange trading, involves buying and selling currency pairs. It’s one of the most popular markets for beginners, and in this article, we’ll provide you with a top 10 list of the forex pairs you should know.
How to Trade Forex: Understanding the Basics
Before delving into the details of each of the top 10 FX pairs, let us briefly explain the fundamentals of forex trading: In forex, traders speculate on the price fluctuations of a currency pair, such as EUR/USD or GBP/JPY.
A trader will make a profit if they are right when predicting whether one currency is going to get stronger or weaker than the other.
How to Trade Forex: The EUR/USD Pair
The most traded forex pair in the world is EUR/USD, the euro against the US dollar.
The EUR/USD pair responds to a mix of economic indicators from both the Eurozone and the United States: look out for GDP growth rates, employment figures, and the monetary policies of the central banks in the US.
The EUR/USD pair is among the most liquid and least volatile pairs in the forex market, and forex traders’ favourite.
How to Trade Forex: The USD/JPY Pair
Another widely followed forex pair is the USD/JPY pair, which is the US dollar trading against the Japanese yen.
This pair is greatly affected by the divergence in interest rates between the Federal Reserve and the Bank of Japan.
To trade the USD/JPY pair, pay attention to economic data from both countries, such as inflation reports or trade balances. It is frequently referred to as the ‘rock’ of the forex world due to its stability and is a great pair for beginners as well as seasoned traders.
How to Trade Forex: The GBP/USD Pair
The GBP/USD, nicknamed ‘Cable’, represents the British pound against the US dollar. Political events and economic data from the UK and the US have a direct impact on this pair.
Important events to keep an eye on are related to Brexit, the decision of the Bank of England on interest rates, and UK economic data such as retail sales, manufacturing, and, most importantly, inflation.
The GBP/USD pair is more volatile than the EUR/USD, and provides traders with the chance to take higher profits but also to suffer bigger losses.
How to Trade Forex: The USD/CHF Pair
The USD/CHF pair is the US dollar traded against the Swiss franc. Because the franc is considered a ‘safe-haven’ currency, it tends to rally and rise when global risk sentiment is on the decline.
This includes those times when markets are extremely volatile.
When this happens, traders rush to buy the Swiss franc. Concerning the USD/CHF pair, this causes its price to decline.
To trade this pair, keep tabs on global economic stability and global geopolitical events. The policies of the Swiss National Bank are also an important factor in determining its direction.
How to Trade Forex: The AUD/USD Pair
Prices of commodities, such as gold and iron ore, have a large impact on the AUD/USD currency pair.
The Australian dollar is a commodity currency and the Australian economy is very reliant on the price of commodities. Trading the AUD/USD pair means that you are reacting to commodity-price movements.
Watch the prices of commodities and other factors that impact the value of the Australian dollar, such as economic data from China (China being a major trading partner for Australia), and Australian interest rate decisions by the Reserve Bank of Australia.
How to Trade Forex: The USD/CAD Pair
The USD/CAD also represents the US dollar, while the CAD part symbolizes the Canadian dollar.
To some extent, this pair is also sensitive to commodity prices in general and crude oil prices in particular, as Canada is a major oil exporter, so it pays to keep an eye on oil price development together with economic data from Canada and decisions made by the Bank of Canada that raise or lower interest rates.
The USD/CAD is also one of the pairs that are often traded by those who follow the energy markets and the price of oil (yes, oil is a commodity, but it has its own category), as the correlation between the USD/CAD and oil price is very strong.
How to Trade Forex: The NZD/USD Pair
The New Zealand dollar (NZD) paired with the US dollar (USD) is a forex trading pair (NZD/USD), and it is affected by commodity prices, especially dairy products.
New Zealand is one of the world’s largest exporters of dairy products, which makes the New Zealand dollar and the NZD/USD pair dependent on the evolution of global commodity markets.
Keep an eye on New Zealand’s economic data and the Reserve Bank of New Zealand’s interest rate decisions as well. This pair is very volatile, giving you the chance of big gains.
How to Trade Forex: The EUR/GBP Pair
The EUR/GBP pair represents the euro against the British pound. Economic data and political events from the Eurozone and the UK strongly influence this pair.
Brexit developments, trade negotiations, and Eurozone and UK economic indicators such as GDP growth and employment, are some of the factors to pay attention to.
The EUR/GBP is generally less volatile than other pairs, but it is still a good option for traders who want an occasional break from the excitement.
How to Trade Forex: The EUR/JPY Pair
An exchange rate between two fiat currencies, EUR/JPY is the euro against the Japanese yen.
It’s a bit of a hybrid pair. It can be affected by economic data from both the Eurozone and Japan, and also by global risk sentiment.
To trade the EUR/JPY pair, follow interest rate differentials between the European Central Bank and the Bank of Japan, as well as geopolitical events that can affect risk appetite.
You can get stopped out, only to be re-entered, and see the price move even more in your favor.
How to Trade Forex: The GBP/JPY Pair
The GBP/JPY pair is the British pound against the Japanese yen. The pair is extremely volatile and is affected by economic data and political events in the UK and Japan.
With the GBP/JPY pair, keep an eye on interest rate decisions, economic indicators, and geopolitical events to trade.
The GBP/JPY pair trades wide, which makes it suitable for experienced traders who can manage the risks involved with high volatility.
The international nature of the forex market also means that there can be a lot of nuances with particular currency pairs when trading them.
For example, the price movement of USD/JPY will likely be more responsive to news about interest rates than USD/CHF. The top 10 FX pairs above are very diverse, but each currency pair has its own characteristics.
For example, the German DAX is a basket of large German companies, and the Japanese Nikkei is a basket of large Japanese companies, which might be influenced by different factors.
Understanding what is likely to drive a specific currency pair’s price, and being aware of economic data, central bank policies, and geopolitical events, can help you make better trading decisions.
Additional Tips on How to Trade Forex
1. Educate Yourself: Continuously learn about forex trading strategies and market analysis techniques.
2. Practice on a Demo Account: Before trading with real money, practice with a demo account.
3. Create a Trading Plan: Formulate clear goals, risk management rules, and strategies in your trading plan.
4. Be Aware: Follow the news and be informed about what’s going on in the market.
5. Technical and Fundamental Analysis: Use both technical and fundamental analysis to maximize the quality of your trading decisions.
6. Manage Your Risks: Use stop-loss orders and manage your leverage to minimize risks.
7. Be Patient and Disciplined: This is the key to success in forex.
These tips will help you with your forex trading journey with the top 10 FX pairs. Remember, the best traders never stop learning and adjusting to changing market
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