How to Choose the Right Currency Pair for Your Prop Firm Trading Strategy

Suppose you’ve got your prop firm account funded and ready to go. Now comes the big question: What currency pair should you trade? With so many options in the forex market, picking the right one can be very confusing. That’s why it is important to know the currency pairs that you should need to choose for your trading strategy. So let’s discuss and see the best one for a successful trading journey. 

Understanding Currency Pairs

Currency pairs fall into three main categories:

1. Major Pairs – These include the most traded currencies worldwide like EUR/USD, GBP/USD, and USD/JPY. They typically have high liquidity and low spreads.
2. Minor Pairs (Cross Pairs) – These don’t involve the U.S. dollar like EUR/GBP or AUD/JPY. They can still be liquid but tend to have wider spreads.
3. Exotic Pairs – These consist of one major currency paired with a less-traded one like USD/TRY or EUR/ZAR. They tend to have high volatility and wider spreads.

Step 1: Align the Pair with Your Trading Style

Different qualities in a currency pair are necessary for different trading techniques. This is a brief:

• Scalping: Tight spreads, strong liquidity, and quick price fluctuations are necessary for scalping. For this, major pairings like USD/JPY and EUR/USD are ideal.
• Day Trading – Liquidity is still crucial for day trading in a prop firm but you may also prefer pairs that exhibit recurring patterns. AUD/USD and GBP/USD are generally wise investments.
• Swing Trading: Swing traders want pairings with distinct trends and moderate volatility since they hold positions for days or even weeks. USD/CAD and EUR/GBP can function effectively.
• News Trading: If you base your trading on economic events, pick pairings that are linked to economies that often provide news that has an impact such as USD/CAD (because of oil prices) or GBP/USD (because of UK data releases).

Step 2: Consider Liquidity and Volatility

Liquidity and volatility go hand in hand. If a pair has high liquidity then it means you can execute trades quickly with minimal slippage. That’s why majors are favored by most traders.

Volatility, on the other hand, dictates how much a pair moves. Too little volatility and you won’t have many opportunities. Too much and your risk skyrockets. Pairs like GBP/JPY or EUR/AUD tend to have higher volatility while EUR/USD and USD/CHF are relatively stable.

Step 3: Check the Spread and Trading Costs

You must keep expenses down since prop companies sometimes have stringent guidelines on drawdowns and earnings objectives. Your gains may be reduced by spreads and costs, particularly if you make several transactions each day.

• The least spreads are usually seen in low-spread pairs such as EUR/USD, USD/JPY, and GBP/USD.
• Exotics such as USD/TRY and EUR/NZD can have extremely wide spreads, making them dangerous unless you’re trading for a lengthy time.

Step 4: Analyze Correlation Between Pairs

Some currency pairs move in sync with each other while others move in opposite directions. If you’re trading multiple pairs then you don’t want them to be too correlated or you’ll just be doubling your risk.

• Highly correlated pairs – EUR/USD and GBP/USD often move together.
• Inverse correlations – USD/CHF and EUR/USD typically move in opposite directions.

Use a correlation tool to make sure you’re not overexposing yourself to the same market movements.

Step 5: Match the Pair with Market Conditions

Conditions in the market fluctuate. While some couples do better in markets that are trending, others do well in a range of circumstances.

• Trending pairs: EUR/AUD and GBP/JPY frequently exhibit robust patterns.
• Range-bound pairings: such as EUR/GBP and USD/CHF, often remain within well-defined ranges.

Look for couples with significant momentum if you’re tracking trends. Focus on pairings that obey support and resistance levels if you’re a range trader. 

Step 6: Factor in Economic News and Events

Major price fluctuations can be caused by economic events. The news might affect some couples more than others.

• USD pairs: These fluctuate significantly during FOMC meetings and other U.S. economic releases, such as the NFP.
• GBP pairs: Increases in GBP/USD and GBP/JPY can be caused by UK inflation and Bank of England remarks.
• AUD and CAD pairs: The pairings of AUD and CAD are highly responsive to central bank announcements and commodity prices.

To find out what events can affect your selected pair, check an economic calendar every day. 

Step 7: Consider the Time You Trade

Not every pair is operational at all times but forex is open around the clock. The pair determines the optimal trading times:

• EUR/USD, GBP/USD, and USD/CHF are at their best during the London session (8 AM–4 PM GMT).
• New York session: USD pairings are very active from 1 PM to 10 PM GMT.
• More activity is seen in the JPY and AUD pairings during the Asian session (12 AM to 8 AM GMT).

Trading becomes more costly when you trade during off-peak hours because spreads widen and liquidity declines. 

Step 8: Test and Adapt

In the end, there isn’t a single currency combination that works for everyone. Demo trading and backtesting are the greatest ways to determine what works for you.

• See how your chosen pair has performed in the past by backtesting your strategy.
• Use a demo account to trade the pair of your choice in real-time without having to risk any money.
• Examine your results and try another pair if the first one isn’t functioning.