How to Start Trading Major Forex Pairs

What are Major Forex Pairs?

• EUR/USD
  The Euro/U.S. dollar is the most traded forex pair in the market. It’s said to attract around a fifth of all forex transactions. It’s a representation of two of the world’s largest economies – the United States and the member states of the European Union that have ditched their fiat currencies in favor of the euro.
• GBP/USD
  The Pound/U.S. dollar is another hugely popular forex pair. Nicknamed “cable”, around a tenth of all forex trades involve GBP/USD. It represents how many U.S. dollars are required to buy £1.
• USD/CHF
  The U.S. dollar/Swiss franc pair is another of the four “original” major forex pairs. The Swiss franc has long been considered a safe haven for forex traders and investors due to Switzerland’s neutral geopolitical position and its comparatively stable economy.
• USD/JPY
  The U.S. dollar/Japanese yen is the fourth and final major forex pair of the original quartet. It tracks how many Japanese yens are required to buy $1. Japan is in the top-three biggest national economies and its role as a leading exporter adds further weight to the influence of JPY.

However, there are a few other forex pairs which many consider to be “major” too. These are what’s known as the “commodity pairs” – USD/CAD, AUD/USD and NZD/USD.

Why Trade Forex Major Pairs?

There are several reasons why forex traders buy and sell major forex pairs:

1. High Liquidity
   All major forex pairs attract the highest liquidity in the forex market. This means there’s more likely to be someone waiting to take your market order, allowing for faster and more efficient trading.
2. Tightest Spreads
   As the liquidity of major forex pairs is as high as it gets in the forex market, this also leads to tighter “spreads”.
   The spread is the difference between the buy and sell rates of your forex broker. The narrower the gap, the cheaper the cost of trading. It also means your new positions don’t need to move as much to rise or fall into profitable territory.
3. Wealth of Market Analysis
   As the major forex pairs attract the most liquidity, they are covered in depth by analysts. This gives you access to valuable insights and forecasts. These pairs are heavily linked to global economic events and indicators, so they are the most obvious benchmarks of market stability.

Key Factors Influencing Major Forex Pairs

There are several economic and geopolitical events throughout the year which can influence the rise and fall of major forex pairs:

• Interest rate decisions
  If a country’s central bank chooses to hike interest rates, this tends to increase the native currency’s value as it attracts more direct foreign investment. If a central bank cuts interest rates, this usually depreciates a native currency.
• GDP growth
  Economic growth – or the lack of it – can influence the strength or weakness of a national currency. If a country sits on the precipice of entering a technical recession, this can cause its currency to weaken considerably.
• Unemployment rates
  Major forex pairs can rise or fall based on the latest unemployment rates too. If the number of jobless people rises, it can be a lagging indicator of a possible recession.
• Core inflation rates
  If core inflation threatens to spike in a national economy, this can cause currencies to appreciate, since the main lever for central banks to combat inflation is to hike interest rates.
• Quantitative tightening vs Quantitative easing
  Keep a close eye on the monetary policy of a nation’s central bank. If the U.S. Federal Reserve or the European Central Bank embarks on a policy of quantitative tightening, this can strengthen the value of USD or EUR by reducing the monetary supply in the economy.
  Similarly, quantitative easing can depreciate the value of USD or EUR since the monetary supply expands as a result.

Trading Strategies for Major Forex Pairs

If you don’t know where to begin with buying or selling major forex pairs, here’s a cluster of battle-tested, actionable trading strategies that work when trading the world’s most valuable currencies:

1. Trend Following
   Some forex traders will look to spot and follow long-term trends for major forex pairs like GBP/USD and EUR/USD. These traders will lean more heavily on technical analysis, using indicators like trendlines and moving averages to ascertain a currency pair’s next direction.
2. Range Trading
   This is another approach used by forex traders who prefer technical analysis of the markets. They’ll look to pinpoint support and resistance levels for a forex pair and trade between this “range” i.e. buying near the support and selling near the resistance.
3. News Trading
   This trading style is favored by those who use fundamental analysis to inform their forex trading decisions. They’ll look to capitalize on volatility caused by economic events or announcements like the U.S. Federal Reserve’s latest interest rate decision or the UK’s latest unemployment rate.
4. Carry Trading
   Carry trades are the bread-and-butter for traders of major forex pairs. They’re achieved by exploiting differentials in interest rates i.e. buying a higher-yielding currency and selling a lower-yielding one.

Most Volatile Forex Pairs

If you’re someone who likes the idea of trading market momentum and following trends, understanding the most volatile forex pairs to trade is key to finding the currencies which offer the potential for greater returns and diminished risks.

Here are three major forex pairs to keep an eye on for moments of volatility and price instability:

• GBP/USD
  Cable is famed for having especially sharp price movements based on economic and geopolitical events.
  For instance, the morning after the Brexit referendum vote, the pound’s value fell over 10% in a single trading session. USD strengthened in this scenario as investors fled the pound in fear of a weakening economy.
• USD/JPY
  The delayed prospect of interest rate cuts with the U.S. Federal Reserve, as well as the continued stability of the U.S. economy has seen the Japanese yen depreciate in the summer of 2024.
  However, the unwinding of a long-standing carry trading strategy between USD/JPY saw the yen strength considerably from 160 yen to the dollar in July 2024 to 144 yen to the dollar in August 2024.
• AUD/USD
  The AUD/USD is one of the three commodity pairs in the forex market. Its volatility is caused by the Australian economy which remains heavily dependent on commodities. The Australian dollar is therefore sensitive to global trade dynamics.

Trading ZAR Pairs

Trading the forex pairs involving the South African rand (ZAR) has several unique characteristics. The most notable being the currency’s direct correlation with the price of precious commodities, including gold and platinum. Even the country’s diamond reserves shape the strength (or weakness) of the South African economy. All of which explains why forex pairs involving ZAR are some of the most volatile to trade.

Forex pairs involving ZAR are also influenced by broader fluctuations in commodity markets worldwide. If supply outweighs demand globally, this is likely to have a negative impact on South Africa’s commodity reserves and the value of its currency. To trade ZAR pairs properly, you’ll need to keep tabs on commodity prices and stay abreast of local economic data too.

If you’re thinking of trading forex pairs in South Africa, we’ve got a carefully curated list of partnered forex brokers which welcome South Africa-based traders.

Practical Tips for Trading Major Forex Pairs

Below, we’ve put together some actionable advice for trading major forex pairs as a first-timer:

• Manage your risk
  Always frame your trades by defining a risk-reward ratio. Set a stop-loss order to ensure a maximum potential loss, as well as a take-profit order to close profitable positions at the right price to prevent greed from setting in.
• Focus on high-liquidity trading timeframes
  Timing your trades is best to execute your entries and exits with speed and for the best possible price. The overlap period of London and New York trading sessions is a case in point.
• Lean on technical indicators
  Use a blended approach including technical analysis. Master indicators like moving averages, RSI and trendlines to frame entry and exit levels.
• Monitor economic and geopolitical news
  Build on technical analysis by monitoring economic data releases and geopolitical events which can strengthen or weaken major currencies.

Additional Guides for Forex Beginners

If you’re still learning how to trade the forex markets and you’d like to deepen your understanding of other aspects of the industry, check out our following guides:

• Beginner’s Guide to Forex Trading
• Best Forex Strategies for Investment
• How to Analyse Forex Charts

Forex Major Pairs FAQs

How Can I Make Money From Trading Forex Major Pairs?

There are numerous strategies you can use to profit from trading forex major pairs. Ultimately, you should look to use technical and fundamental analysis to correctly predict the likely price movements and open an order in the market which has a good opportunity of moving into a profitable position.

What Fees Do I Need to Factor in When Trading Forex Major Pairs?

There are five core costs to consider in forex trading – commission, spreads, swap fees, overnight charges and storage fees. When selecting a forex broker to trade with, make sure to do your research and find a brokerage that offers the most competitive fees to maximize your ability to trade profitably.

How Can I Be Sure I’m Trading Forex Major Pairs Safely?

The best way to make sure you’re trading forex major pairs legitimately is to use a forex broker that’s licensed and regulated by a reputable financial services jurisdiction. Ideally, they’ll be licensed by a body in your native country, giving you peace of mind that a regulator has got your back.