In the FX market, currencies are traded as pairs. This means by buying a pair, you are simultaneously buying the first currency, called a base, and selling the second, called a quote currency. Selling a pair means you are selling the base and buying the quote. The pair’s price is often listed as two prices, which are called a bid and ask price. The difference between these two prices is called the spread, which is what the brokers charge you for doing business with them.
Types of currency pairs
There are three types of currency pairs, namely major, minor pairs, and crosses. A major pair must contain the USD and a currency from one of the major global economies, such as the GBP, JPY, CAD, and the likes. A minor pair does not contain the USD but must include one of the currencies from the aforementioned major global economies. Crosses, on the other hand, are currency pairings that do not include the greenback. Following that logic, therefore, a minor pair is a type of cross, but not all crosses are minors.
Best pairs for day trading in 2022
Colloquially dubbed Fiber, this pair consists of the euro and the US dollar. It is the most traded pair by volume, owing largely to the size and stability of the economies behind its currencies. The euro is used in at least 19 countries in the EU, while the USD is the most commonly used currency in the world. It is the unofficial reserve currency, and most world trade and debts are settled in the USD. The EURUSD pair boasts high liquidity, high volatility, and very tight spreads, all of which create the perfect conditions for day trading.
Aptly nicknamed the gopher, this pairing consists of the greenback and Japan’s yen. It is the second most popular currency among traders. Similar to EURUSD, it is known for its high liquidity, which means traders can open and close even large trades easily and quickly, making for little to no slippage costs. The yen is the most traded currency in Asia, while the dollar’s role in world economics cannot be overstated. This pair’s price is most heavily influenced by interest rates set by the Fed and the Bank of Japan.
This pair is informally called the cable, after the transatlantic cable that was laid between the US and UK for transmitting forex prices between their two major trading desks. It is one of the most traded pairs, owing largely to the strength and stability of the British and American economies. The value of this pair depends on the state of the two economies, and whichever country has the stronger economy will have its currency rise in value against the other. Further, interest rate decisions from the Fed and the Bank of England will also significantly move this pair’s price.
For obvious reasons, this pair will sometimes be called the Aussie. It is classified as a commodity currency since the value of the AUD is heavily dependent on the cost of their material exports, such as metals, minerals, and coal. Therefore, day traders would benefit from following closely the fluctuations in the value of these commodities to better trade the pair. Additionally, as with most other pairs, its value will also be influenced by interest rate decisions set by the two countries’ central banks.
This pair’s nickname is the loonie, after the loon bird, which is engraved on the Canadian dollar coin. Like the AUDUSD, it is also classified as a commodity currency. However, the commodity in question is oil, as it represents Canada’s main export. Therefore, if you are a day trader wishing to dabble in this pair, you will be wise to keep up with the changing oil prices in 2022.
USDCNY represents the pairing of the greenback against the Chinese yuan. Since Trump started the trade war with China, the yuan has been strengthening against the dollar. USDCNY is the pair traded within China’s mainland, while outside its borders, the pair goes by USDCNH. The USDCNY pair is not as closely controlled by the government as USDCNH, which makes it more suitable for day trading.
This pair represents the currencies of the US and Switzerland. The US role in global finance, coupled with Switzerland’s status as the global banking hub, makes this pair particularly attractive to forex traders. This pair is especially preferred during times of unrest and financial instability. Therefore, if any global crisis unfolds in 2022, this pair would be a suitable go-to for day traders.
This pair is cleverly nicknamed the Chunnel, a clever wordplay from the Channel Tunnel that connects the UK to the larger European continent. Seeing as the pair does not include the USD, it is classified as a minor pair. In recent years, this pair has seen increased volatility due to the UK exit from the EU. However, there are still strong trade relations between the two regions, which makes the pair a favorite among day traders. Such traders would also be wise to look out for interest rate decisions from the Bank of England and the European Central Bank, as these decisions greatly influence the pair’s price.
Since day traders mainly bank on short-term price movements for profit, they would typically benefit from high liquidity pairs that also boast relatively high volatility. Pairs that have these characteristics are often the most traded pairs, and their large volume of trades compel brokers to offer competitive spreads. This comes as an advantage for day traders as it increases their profit margin. The pairs we have discussed look very promising for the average day trader in 2022. However, before picking a pair, always do your due diligence.