The Best Currency Pair to Trade in the Forex Spot Market

Currency Pairs

I constantly get emails from traders asking me what is my opinion is the best currency pair to trade. Well, I think that there is no objective answer to this question. It very much depends on the trading system you are using. For example, one forex trading system is designed to trade range markets, another forex trading system may be designed to trade medium to long term trending markets and yet other type of system could be designed to day trade.

Each currency pair has it's own personality so to speak. One pair might be more volatile and would be appropriate for medium to long term trend trading system. As an example, the GBP/USD pair has shown to produce very large daily and weekly ranges in the past two years making it perfect for capturing large trends. Thus, a range based forex trading system would not be very appropriate for this type of market.
On the other hand a pair such as CHF/JPY, although having some descent trends, tends to range more often. This pair would be a better candidate for range trading systems.

For day traders the situation is very different. Day traders would look at currency pairs that are more volatile intraday and concentrate less on long term ranges. For a day trader the spread on the currency pair is crucial for success while for the medium to long term trader this is not an issue. So, if I day trade I would chose pairs that have very tight spreads such as the EUR/USD. In today's competitive market conditions many forex brokers will provide a spread of 2 pips on this pair which makes it perfect for day trading. Going for small profit objectives and close stop losses demands that you trade with the tightest spread available.
Furthermore, a day trader would look at pairs with good liquidity since liquidity is the main factor affecting slippage. When you day trade you want to keep your slippage at minimum levels since you are executing many trades per day or week.

An example of a currency pairs that would never be candidates for day trading are GBP/JPY (depending on the forex broker could have a 7 pip spread) or GBP/CHF (again, depending on the broker could have a 12 pip spread). If you are going for profit objective of 30-40 pips per trade, you would get killed with a 7 or 12 pip spread!
However, a 7 pip spread is not very important when you are using a forex trading system or strategy that aims at capturing 300-400 pips per trade.

As you can see there is no such thing as the best currency pair to trade the forex market. Spread, volatility, slippage, ranges, and liquidity are the most important factors when deciding which pair to trade and which forex trading system to use.

I wish you all the best in your forex trading!
Avi Frister