8 Best Pairs to Trade Forex in 2023
In this article, we’ll share the 8 best forex pairs to trade in 2023 based on factors like volatility, liquidity, trading hours, and risk management. Staying ahead in Forex means understanding the market’s pulse and knowing which currency pairs offer the best opportunities.
Before we reveal our top 8 picks, let’s take a few minutes to understand the fundamentals of currency pairs.
Understanding Forex Currency Pairs
The different currency pairs are the foundation of the forex market, making up the various buying and selling combinations traders use.
Let’s take the most traded currency pair as an example, EUR/USD, representing the euro and US dollar. The euro serves as the base currency, while the US dollar is the quote or counter currency. The pair indicates how many US dollars are needed to buy one euro. Traders analyse the exchange rate fluctuations between the two currencies when buying and selling EUR/USD.
Currency pairs can be categorised into three main types: majors, minors, and exotics.
Major Currency Pairs
Majors are the most actively traded currency pairs that always involve the US dollar. With high liquidity and volume, these pairs offer lower spreads and competitive pricing. On the downside, their popularity makes the major currency pairs a crowded trading space.
There are just four major currency pairs to trade, and they are:
- EUR/USD
- USD/JPY
- GBP/USD
- USD/CHF
For traders interested in leveraging these major pairs with additional financial support, our Forex Funded Trader Accounts provide a unique opportunity.
Minor Currency Pairs
Also known as cross-currency pairs, minors do not contain the US dollar. Instead, they incorporate other major global currencies like the euro and yen.
Compared to majors, minors’ liquidity and spreads are more modest in size but still big enough that profit opportunities exist. This makes them an appealing option for traders seeking less competitive markets.
Some examples of minors are:
- EUR/JPY
- GBP/CAD
- EUR/GBP
Exotic Currency Pairs
Exotics are scarcely traded pairs of a major currency and one from an emerging economy. With higher spreads, low liquidity, and limited market depth, exotics carry substantial risks. For the risk-tolerant trader, they present a much greater profit potential.
Some examples of this type of currency pair include:
- USD/THB (Thai Baht)
- EUR/ZAR (South African Rand)
- GBP/TYR (Turkish Lira)
Factors That Affect Forex Trading Pairs
Liquidity and Why It Matters
A pair’s liquidity, or the ease of buying and selling it, has to be the biggest consideration for forex traders. High liquidity indicates tighter spreads, better pricing, and the ability to enter and exit trades quickly. That’s why trading major currency pairs with high volume is attractive to most traders.
Volatility and Risk Management
A pair’s unpredictable price swings measure its volatility. High volatility is a double-edged sword. Big price movements often come with great rewards, but the risk of losses also increases. Experienced traders understanding these forex challenges may trade multiple pairs, spreading the risk. Setting stop losses should be a given.
Economic Stability and Geopolitical Factors
Keeping abreast of economic and geopolitical events has an all-important part to play when choosing your forex pairs. Major elections, leadership changes, wars, shifts in interest rates, and regulatory affairs all impact currency values.
The bottom line is you need to become a news junkie, at the very least, in your areas of trading interest. Stay informed on the countries tied to the specific currency pairs you trade, but keep an eye on global macro trends that might still have a ripple effect.
Trading Hours and Market Overlap
Forex markets operate 24/5, with trading hours varying across global financial centres. Consider when both currencies in a pair are in action. Overlapping trading hours provides greater liquidity and volatility. Limiting trades to only one market’s hours reduces the window of opportunity.
Best Currency Pairs
Based on our deep experience, these forex pairs are the best in the current trading climate.
1. EUR/USD (Euro – US Dollar)
There’s no better place to start than with the EUR/USD, the most actively traded and liquid currency pair globally. Nicknamed the “fibre,” this currency pair represents the eurozone and US economies, the two largest in the world, accounting for over 20% of daily forex transactions.
The euro currency represents 19 European Union members and the world’s largest single market. The US dollar serves as the global reserve currency. With tight spreads and depth, traders benefit from competitive pricing and the ability to react quickly to economic data and news events.
The EUR/USD pairing can be influenced by interest rate differentials set by the ECB and US Federal Reserve, shifts in EU and US economic growth and geopolitics impacting either currency. For accessibility, liquidity, and opportunities, the EUR/USD is hard to beat.
2. USD/JPY (US Dollar – Japanese Yen)
For those looking to dip their toes into the Asian markets with limited risk, the USD/JPY would be our choice. Also known as “the gopher,” this major currency pair represents the second most traded currency duo globally, making up over 13% of daily transactions in the forex market.
The pair’s movement also tends to be in tandem with the USD/CHF and USD/CAD currency pairs due to the presence of the US dollar in all three pairs as the base currency.
The USD/JPY offers attractive liquidity and more predictable price action compared to other pairs. The Bank of Japan frequently intervenes to keep the yen’s value low for Japanese exports. This “dirty float” regime creates regular fluctuations traders can capitalise on.
With tight spreads and accessibility, USD/JPY provides an engaging way to trade based on macro US-Asia relations.
3. GBP/USD (British Pound – US Dollar)
Another of the most traded currency pairs is the GBP/USD, otherwise known as “the cable.”
The GBP/USD is historically significant as one of the first currency pairs traded, dating back to the 1800s. It earned the “cable” nickname from the transatlantic cables used to exchange British pounds and US dollars between the two countries.
The GBP/USD tends to trend aligned with the EUR/USD, given both pairs involve mature Western economies. For traders today, it presents an attractive option to put to advantage two of the most stable currencies globally.
Interest rate differentials from the Bank of England and the US Fed drive price action. Economic and political events in the UK also influence GBP volatility, Brexit being one that springs to mind for traders who were around to witness its effect on the market.
With high liquidity and notoriously large price swings, the GBP/USD makes it a go-to major pair for traders wanting to cash in on pound volatility.
4. AUD/USD (Australian Dollar – US Dollar)
The AUD/USD pair gives traders exposure to the dynamic between the Australian and US economies. It pairs a major currency with a commodity-linked one.
Australia’s economy depends heavily on commodity exports like metals and fossil fuels. When commodity prices rise, the Australian dollar strengthens against counterparts like the US dollar.
This pair tends to be volatile, with price swings driven by shifts in commodities, differential interest rates between the RBA and Fed, and fluctuations in risk appetite.
As a trader, you can profit from commodity cycles and macro trends in Asia Pacific.
5. USD/CAD (US Dollar – Canadian Dollar)
Also nicknamed the “loonie”, the USD/CAD, these major currencies combine the US dollar with the commodity-driven Canadian dollar.
As Canada’s biggest export, oil prices significantly influence CAD values. When oil rises, the loonie tends to strengthen versus the greenback.
Beyond oil, interest rate differentials between the US and Canadian central banks also govern the price of USD/CAD. And as major trading partners, their economies are closely tied.
6. USD/CHF (US Dollar – Swiss Franc)
Representing around 5% of daily forex transactions, the USD/CHF pairs the US dollar with the Swiss franc. Also dubbed the “Swissie,” the CHF serves as a historic safe haven currency.
In times of market unrest, the Swiss franc tends to strengthen as investors flock to its stability. This causes USD/CHF prices to fall. When volatility subsides, the pair may rise again.
It’s not the most actively traded major pair, but due to the contrarian nature of USD/CHF, traders can potentially profit from the interplay between market turmoil and subsequent stability.
7. EUR/JPY (Euro – Japanese Yen)
As a minor pair, the EUR/JPY offers a change of pace from the predominantly dollar-denominated majors. Combining the euro with the safe-haven yen can add diversity to your trading outside USD pairs. While not as liquid as the majors, the EUR/JPY still has decent volume as one of the most traded minor pairs. The euro represents Europe’s largest economy, while the yen is Asia’s foremost currency.
Relative economic fortunes and monetary policies of the ECB and Bank of Japan largely dictate EUR/JPY prices. But as a cross pair, global risk trends also significantly sway its value.
8. USD/HKD (US Dollar – Hong Kong Dollar)
We thought at least one exotic pair ought to be on our list, so the USD/HKD fits the bill.
While it comes under the exotic banner, the currency pair has less risk than other exotics thanks to Hong Kong’s growing economy and financial markets. The pair saw volatility during the 2019-2020 Hong Kong protests, but conditions have stabilised.
For adventurous traders, USD/HKD is a less risky way to trade Asia without the high volatility of many exotics.
Wrapping Up
There are many other popular currency pairs traded on the forex market, but we believe this list is a well-rounded selection for 2023. Each currency pair has unique drivers and volatility that will match different trading strategies and risk appetites.
For experienced or new traders, the major pairs can serve you well – there’s a good reason they are among the most traded forex pairs globally. You can diversify your trading with less common currency combinations and still come out on top as long as you manage risk intelligently.
