Not all currency pairs cost the same to trade. A pair that moves a lot can look attractive, but if its spread eats a big part of that move, there is less left for you. Here is how the three groups of pairs differ, and a simple test to compare them.
Three Groups of Pairs
- Majors: the US dollar against another top currency, such as EURUSD, USDJPY and GBPUSD. Highest liquidity, tightest spreads, small swaps.
- Minors (crosses): two major currencies without the dollar, such as EURGBP, GBPJPY and AUDNZD. Good liquidity, moderate spreads.
- Exotics: a major against an emerging-market currency, such as USDTRY or USDZAR. Wide spreads, large swaps and a higher risk of gaps.
EU and UK retail clients get up to 1:30 leverage on majors, and as little as 1:20 on many crosses and on exotics.
The Spread-to-Range Test
Divide a pair's typical spread by its average daily range. The result shows how much of the day's movement you pay away just to open a trade.
- EURUSD: 1-pip spread, 70-pip range = about 1.4%
- GBPJPY: 3-pip spread, 150-pip range = 2%
- USDZAR: 100-point spread, 2,000-point range = 5%
The exotic moves the most, but gives up more than three times as much of its daily movement to the spread as EURUSD. Its extra movement has to beat its extra cost before it can become profit.
The swap trap: earning a $3 nightly swap on 0.10 lots of an exotic brings about $90 a month. One 3% move against you costs about $300, more than three months of swap.
Which Pairs Suit an Expert Advisor?
For automated trading, majors and liquid crosses are usually the best fit: costs are lower and price behaviour is more stable. Some crosses, such as EURGBP or AUDNZD, often move in ranges, while yen crosses tend to trend.
Falcon FX scalps the majors EURUSD, GBPUSD and AUDUSD plus AUDCAD from one chart, with a limit on how many trades can share the same currency. Velora FX is built for the AUD, NZD and CAD crosses, which often move in ranges.
Whatever pair you choose, backtest it with its real spread, give volatile crosses wider stops and smaller lots, and remember that EURUSD and GBPUSD together are largely one bet on the dollar.
Trading Forex and other leveraged instruments involves a high risk of loss. The figures above are examples, not current market data.
