/ Top Forex currency pairs: Profitable options for trading

The Forex market is one of the most liquid markets in the world, with an impressive $5 trillion worth of different currencies traded daily. However, which Forex pairs are the most popular among traders and why?

A Forex pair tracks the price of one currency against another. There are two parts to a pair - the base currency and the quote currency. The base currency is the first currency in the pair, and is the currency that the trader believes will rise or fall against the quote currency. For example, if you sell the Japanese Yen against the US Dollar (JPY/USD), it means that you expect the price of the Japanese Yen to fall against the US Dollar. Forex pairs are divided into three main types, which include:(ol)

• Major Pairs: These pairs are considered to be the most widely traded currencies. They include the currencies of the world's largest and most stable economies - some popular pairs include EUR/USD, GBP/USD and USD/JPY. Major pairs are popular with both beginners and experienced traders due to their high liquidity and low spreads;
• Minor Pairs: Also known as cross-currency pairs, do not contain the US dollar, but still include widely traded currencies such as the euro, British pound and Japanese yen. Minor pairs tend to be less popular with traders as they are less liquid and often have higher spreads;
• Exotic Pairs: Pairs combine a major currency, such as the U.S. dollar or euro, with a currency from an emerging economy, such as Brazil or Turkey. These pairs are not traded as frequently as major or minor pairs, so spreads tend to be higher.

Before trading Forex pairs, it is important to understand the factors that influence the markets. One of the key factors is monetary policy. Decisions made by central banks can have a big impact on currencies. For example, a change in a country's interest rate can affect the appreciation or depreciation of a currency pair. When a central bank increases interest rates, it can increase the value of a country's currency, while a decrease in interest rates can decrease the value of the currency.

Another important factor is economic stability. The value of a currency is closely related to the economic stability of a country. Stable economies, such as the US or Japan, attract a lot of foreign investment, which increases the value of their currencies. Less stable economies receive less investment, which causes the currency to weaken.

Political events can also have a significant impact on the strength of a currency. The UK's exit from the EU is a prime example of this. This exit caused a great deal of uncertainty about the future economic prospects of the United Kingdom, causing traders to lose confidence in the Pound Sterling. As a result, its value has fallen significantly against other major currency pairs.

The most popular among traders are the major Forex pairs as they offer high liquidity and low spreads. Below we will break down the four most traded currency pairs:

EUR/USD

This currency pair is known as the 'fieber' and is the most traded currency pair in the world. More than 24% of daily Forex trades are made in this currency pair, which is not surprising given that these are the currencies of the two largest economies in the world. As it is an actively traded pair, spreads are low and less volatile, making it a potentially suitable option for novice traders.

USD/JPY

Known as the 'gopher', this currency pair is one of the most popular among traders. It includes the US dollar and the Japanese yen, the currencies of two powerful economies in the world. Like EUR/USD, the USD/JPY pair is very liquid and has low spreads. This means that traders can easily buy and sell this currency pair without facing large fluctuations in the exchange rate. The high liquidity and stability of this pair attracts traders looking for an opportunity to conduct trades with minimal costs and risks.

GBP/USD

The GBP/USD currency pair, also known as 'cable', is widely traded and is one of the major currency pairs. This pair connects the British pound and the American dollar, and because of its frequent price fluctuations, it is considered more volatile than the 'fieber' or 'gopher'. Some traders prefer this volatility because it offers the opportunity to make higher profits in short periods of time. However, this same volatility can lead to significant losses if the market goes against the trader's expectations. Therefore, trading this pair requires careful analysis and strategic approach.

USD/CHF

The US Dollar/Swiss Franc currency pair, also known as the Swiss Franc, may seem like a surprising inclusion at first, as Switzerland is not a major world economy. However, this currency pair is popular due to Switzerland's enduring reputation as a 'safe haven'. With a stable government and financial system, traders favour the Swiss Franc during periods of economic uncertainty. Although it is less liquid than the other pairs listed, it remains a popular choice among traders.

How to trade Forex pairs

Trading currency pairs in the Forex market requires careful consideration and thorough analysis. Before you start trading, it is important to research and analyse which Forex pair you would like to trade. To do this, you need to consider factors such as the economic stability of countries, the monetary policies of central banks and current political events that may affect exchange rates. Once you have decided on a currency pair, the next step is to log into your trading account. Once logged in, select the desired currency pair from the list provided. This process can be made easier if you familiarise yourself with the trading platform's interface and the main features it provides beforehand.

Once you have decided to buy or sell, it is important to base your actions on detailed analyses and forecasts. You can use various analytical tools provided by your trading platform to make an informed decision. For example, technical analysis of charts, studying historical data and current market trends can help you better understand the possible movement of a currency pair. After opening a position, you should closely monitor the trade in order to evaluate its performance in a timely manner. Regular monitoring will allow you to make timely decisions on closing a position or adjusting it depending on changing market conditions. It is important to be prepared for unpredictable market behaviour and always have a contingency plan.

If your trading forecast is correct, you will make a profit. This can be achieved through careful analysis and choosing the right time to enter and exit a trade. However, if the prediction turns out to be wrong, you will make a loss. It is important to remember that losses are an integral part of Forex trading and you need to be able to minimise their impact on your overall trading performance. Using stop loss orders and risk management will help you protect your investment and reduce potential losses.

Conclusion

The Forex market is a dynamic and complex environment where traders have the opportunity to capitalise on fluctuations in the exchange rates of various currency pairs.Forex trading requires careful analysis, market understanding, discipline, patience and a constant pursuit of knowledge. Traders who are willing to learn, adapt to market conditions and make informed decisions are more likely to succeed and maximise profits in the long term. Forex is a highly liquid and volatile market that can offer significant profit opportunities, but also involves a certain level of risk. It is always important to approach trading with caution, have a clear trading plan and be mindful of the risks involved.