Which is the best currency pair to trade? In this article we will look at the criteria on choosing the best currency to trade and give you some insight on how to make bigger profits from your FX trading portfolio.

Most currency trading advice online in terms of the best currencies to trade will focus on the Euro or Yen against the Dollar and the logic is based on the fact that these currency pairs have the most volume and therefore, have the lowest spreads but there is more to the best currency to trade than volume and spreads.

In fact, there is no best single currency to trade the best pair changes all the time in light of market conditions and in terms of spreads the difference between a 1 pip spread and a 3 pip spread if you are swing trading or long term trend following, this will not impact significantly on your profit potential at all. While many traders like to day trade or scalp the market, this is not a good way of trading in any pair – al you do is trade the noise of the markets – you can get the odds on your side and that means you will lose.

Lets look at the characteristics of the major currencies and cross rates and how you can make profits in any of the currency pairs below.

The Major Currencies

The Dollar v the Euro, Yen, Swiss Franc, British Pound - all offer good liquidity and spreads with the Euro and Yen offering the most liquidity as we have said and they also offer excellent long term trends but the disadvantage of trading these currencies can be, the speculative interest is so high and this means volatility can also be high, trading conditions can be choppy seeing many trades hit on stop, as the markets spike either up or down.

The Australian Dollar and Canadian Dollar are another two good majors to trade and while spreads may be wider than the above currencies, these currencies offer excellent long term trends and offer position traders some great opportunities.

Trading Cross Rates for Bigger Profits

Rather than just focusing on trading pairs which are against the Dollar, you should also trade cross rates.

Cross rates can have higher spreads but can very often provide the best opportunities and the reason for this is there is simply less speculative interest in them. “The General Rule is - “The Less Observed, the better the trade is likely to be. For example, if most traders see a trend coming and its heavily featured in the media and news wires it will be less likely the trade will go as the majority expect.

To explain this in “Market Wizards” Bruce Kovner one of the true FX trading greats explains this by referring to the Heisenberg principle in physics which states:

“If something is closely observed, the odds are it is going to be altered in the process” If a market breaks when know one expects it the odds are therefore far higher than when they do.

If you think about this, it's logical as 95% of traders lose money!

Trade the Best Trends Where Ever they Occur

In terms of trading currency pairs, you need to pay attention to the following two points and if you do you will have the best currency to trade at a particular window in time.

The Currency Pair Doesn't Matter the Potential for Profit Does

Look at all pairs for opportunities, don't restrict yourself yo just one favourite pair because if you do you will be missing opportunities for profit.

Trade Only Markets Which Are Moving

If for example, a currency is making a bottom it can go sideways for a long time, so to avoid speculating

money and tying it up for long periods of time, wait for signs that the market is changing from bearish to bullish or vice versa before trading it. If you get in to early you might have to wait a long time and see little return on your trade.

Final Words

If you currency trading strategy is soundly based, it can make money trading any currency and the best currency will very often change from time to time so keep your eye on all the majors and the cross rates and focus on the best opportunities in ANY currency, in terms of profit potential presented to you.