What Is The Most Profitable Forex To Trade?
Most Profitable Currency Pairs And The Reasons Behind It
A quotation for two distinct currencies is referred to as a currency pair. It is the exchange rate at which one unit of one currency would cost another unit of another. For example, if a trader is given the quote EUR/USD 1.13, it signifies that the trader can exchange 1 Euro and receive 1.13 US dollars in return.
The most profitable forex is EUR/USD due to its high liquidity, low commission and spread, overall trading volume, and sufficient volatility.
There are other famous pairs to trade: USD/JPY, GBP/USD, and USD/CHF. "Commodity currencies" and "cross pairs" are also highly profitable.
Good currency pairs allow forex traders with various trading styles to trade since they are both adequately liquid and volatile. These are sometimes regarded as the most profitable forex trades since they are widely traded by novice and seasoned traders alike.
Most Profitable Currency Pairs And The Reasons Behind It
EUR/USD
The conversion of United States dollars to euros is known as USD to EUR, and it is one of the world's most frequently traded currency combinations.
19 of the 28 countries of the European Union use the euro as their official currency. The euro is a reliable currency that serves as the symbol of the European Union. Austria, Belgium, Estonia, Cyprus, France, Finland, Germany, Ireland, Greece, Italy, Latvia, Lithuania, Malta, Luxemburg, the Netherlands, Slovakia, Slovenia, Portugal and Spain are among the nations that utilise the euro.
Political developments that affect the dollar or the euro relative to one another also impact the USD/EUR pair. For instance, you can anticipate a fall in the dollar-to-euro cross when the European Central Bank intervenes in market activity to boost the euro.
High Liquidity:
The US has the largest economy in the world, with Europe coming in second. As a result of the abundance of banks and financial institutions found in the US and Europe, both currencies are the most traded.
Low Commissions and Spreads
The spread is the difference between the ask and bid prices. Due to the small spread between the bid and ask prices, the liquidity of EUR/USD results in cheaper spreads and costs.
The low spread is advantageous since it ensures efficient trade management and execution. Higher spreads can lead to slippages, negatively impacting your trading performance.
Volatility
A sufficient level of volatility is necessary for all traders to be profitable. Extremely high volatility can cause unanticipated price changes and give traders the chance to win considerably quickly.
Low volatility results in a lax market environment that may be simpler to forecast. Because of its high volatility and lack of the unpredictable price swings that are common with other pairs, such as exotics, the EUR/USD pair is heavily traded.
However, when important news and fundamental data are revealed, the EUR/USD exchange rate may experience erratic price changes.
USD/JPY
Japan's national currency is the Japanese yen (JPY), which originated during the Meiji restoration, and sought to modernise and westernise the Japanese economy. After the end of World War II, the value of the yen significantly decreased, although it has since started to rebound gently after hitting a low after the 1973 oil crisis.
The yen is the fourth most popular reserve currency after the USD, EUR, and GBP. The Yen is retained under a "dirty float" regime because of the active stability intervention of the Japanese government. This indicates numerous daily swings in the value of the yen, but the central banks of Japan routinely buy and sell the currency in large quantities to maintain stable exchange rates.
The Japanese government prioritises maintaining the yen's low value to foster a vibrant export market. If you hold USD, you might make significant gains by taking advantage of these daily movements if you can enter the market correctly.
USD/CAD
It should not be surprising that the values of the CAD and the USD are tightly correlated as Canada is America's northern neighbour in terms of finances and one of their most significant trading partners. There is also a strong correlation between the Canadian dollar's value and commodity prices.
As a result of Canada's reliance on oil exports, the price of oil, in particular, has a relevant impact on the value of the Canadian dollar. In 2016, the Canadian dollar also suffered, falling to an exchange rate of 1.46 CAD to 1 USD, while oil prices dropped to levels not seen in more than a decade.
Keep an eye on the cost of gas, oil, and other petroleum products while trading this pair. It would also help to examine each currency's economic statistics and exchange rates.
GBP/USD
The US dollar and the pound sterling are the two currencies in this pair. Due to the deep-sea cables that were once used to transmit the bid and ask prices between New York and London, the GBP/USD is also known as the "cable" pair. The GBP/USD currency pair accounted for 9.6% of all daily FX transactions in 2019. 1
Like most other currency pairs, the strength of the GBP/USD currency combination stems from the relative robustness of the British and American economies. The pound will probably strengthen versus the dollar if the British economy expands more quickly than the American one. The opposite is true, though, if the American economy performs better than the British.
AUD/USD
The Australian dollar is represented by the currency pair AUD/USD, also known as the "Aussie". In 2019, it accounted for 5.4% of all forex trades each day. 1 The value of Australia's exports, which include commodities like iron ore and coal and make up a sizable amount of the nation's gross domestic product, is strongly correlated with the value of the Australian dollar (GDP). 2
A decline in the price of these commodities in the global market would likely result in a decline in the value of the Australian dollar. This would result in a stronger US dollar, making it cheaper to buy one Australian dollar when it comes to the AUD/USD currency combination.
The difference in interest rates between the Reserve Bank of Australia (RBA) and the US Federal Reserve impacts the AUD/USD exchange rate as it has on the previously stated currency pairs. For instance, if American interest rates were low, the US dollar would likely weaken against the Australian dollar, costing more US dollars to acquire one.
USD/CHF
The USD/CHF currency pair, also referred to as the "Swissie," consists of the US dollar and the Swiss franc. The Swiss financial system has always been a haven for investors and their money, making USD/CHF a popular currency combination.
As a result, traders frequently resort to CHF during rising market volatility but usually show less interest in the Swiss franc during periods of rising market stability. As CHF increases versus the USD as a result of greater investment, the price of this pair may decline during periods of increased volatility.
USD/CNY
The US dollar and the Chinese renminbi, sometimes called the yuan, are partners in the USD/CNY currency pair, making up 4.1% of all daily forex trades in 2019.
Since the commencement of the US-China trade war, the yuan has generally been losing ground to the US dollar. This is partly attributable to the Chinese government, which allowed the yuan to weaken, knowing that doing so would lower the cost of exports and expand the country's already considerable market share in nations other than the US.
Only when the yuan is exchanged in the onshore Chinese market is it referred to as CNY. The Chinese government has historically not exerted as much control over CNH as it has over CNY, making it potentially more volatile. It may be a better option for day trading due to its volatility.
Investors should monitor developments in the US-China trade conflict since they could impact the value of this currency pair.
Conclusion
It would seem to be a good idea to start with the major pairs. Trading them all and learning about the various markets' characteristics would also be beneficial.
Use a demo account to conduct in-the-moment market research. Without a paper trade to learn the fundamentals, you'll probably exhaust your capital before finishing that project.
Although liquidity is necessary, remember that even the most significant currencies have slower periods of the day.