Top 6 Most Tradable Currency Pairs

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Traders have the luxury of highly leveraged trading with lower margin requirements than equity markets. But before you jump in head first to the fast-paced world of forex trading, you'll need to know the currency pairs that traders trade most often. Here's a look at six of the most tradable currency pairs in forex.


Range Trade Forex With Non-U.S. Dollar Pairs 

 


Forex range traders often mistake short-term consolidations for ranges. When they go to make a range trade, they discover that the consolidation was not a long-term range, but rather a short-term consolidation which technically appeared to be a range. Ranges occur all the time, and once a range trader can visually see the range, they often assume it will continue. This often results in frustration and losing trades. However, there is a way to isolate currency pairs, which are more likely to stay range bound and are thus more likely to produce profitable trades from a ranging strategy. By actually avoiding currency pairs involving the U.S. dollar (USD) and looking at central bank interest rates for different countries (currencies), an investor can identify these pairs.
The U.S. Dollar Is a Trending CurrencySince many of the global transactions take place in U.S. dollars, currency pairs involving the dollar are exposed to a trending bias, as opposed to a range-bound bias. While ranges do occur in pairs containing the U.S. dollar, trading these pairs with a ranging strategy over the long term is not as efficient as trading pairs that do not contain the U.S. dollar. If you look at major currency pairs involving the U.S. dollar through 2009, you will see that almost all of these pairs had defined trends. These pairs include the EUR/USD, USD/JPY, USD/CHF, USD/CAD and AUD/USD. These pairs did not move in straight lines in one direction, but it is obvious that any ranges that occurred did not last for long periods of time. Unfortunately, the non-U.S. dollar rule is not 100% accurate, as the GBP/USD did hold relatively well within a range through the last six months of 2009. (For a primer on currency trading, refer to our comprehensive Forex Tutorial.)
But let's look at the most popular currency pair, the EUR/USD. Many traders will trade this pair with any strategy simply because it does the most volume, but it is not the best pair for range trading as can be seen in Figure 1.

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