Top Pairs to Trade in Forex with Tight Spreads in 2023

Top Pairs to Trade in Forex with Tight Spreads in 2023

Reading time: 10 minutes

The Forex market consists of dozens of currency pairs, each with unique attributes. However, one aspect that is often talked about among traders and investors is the spread. Playing a key role in many traders’ profitability, this article explores eight currency pairs that offer not just competitive spreads but also unique opportunities.

Why do Spreads Matter?

In Forex trading, the spread represents the difference between a currency pair's bid and ask price. For example, a EUR/USD spread of 1 pip means the bid price is $1.1100, and the asking price is $1.1101.

The spread is the Forex broker’s commission for executing a trade on your behalf. A low (tight) spread can significantly reduce trading costs and increase profitability. Meanwhile, high (or wide) spreads can eat into returns and potentially render a profitable trading strategy ineffective. While wide spreads are less of a concern for longer-term strategies (think swing trading and position trading styles), the spread can be an issue for shorter-term traders, such as those who scalp, or day trade the FX markets.

Below, you’ll find eight of the most popular Forex pairs to trade. Beneath each header is the average spread for FP Markets’ Standard and Raw Trading Accounts.

1.  EUR/USD (Euro vs US Dollar)

  • Average Standard Spread: 1.1 pips
  • Average Raw Spread: 0.1 pips

EUR/USD takes the crown as one of the top currency pairs to trade regarding spread. It is the world's most traded currency pair, representing currencies from the world’s two largest economies—Europe and the United States. The pairing offers exceptionally high liquidity (meaning traders and investors can easily buy and sell without causing noticeable fluctuations in its price given the high number of willing buyers and sellers) and thus tends to be relatively stable in terms of volatility, exhibiting tight spreads across different trading sessions, especially during the London and New York sessions. 

2.  GBP/USD (British Pound vs US Dollar)

  • Average Standard Spread: 1.4 pips
  • Average Raw Spread: 0.3 pips

Commonly known as ‘Cable’, GBP/USD is a significant player in the Forex market. It ranks as the pair with the third-highest trading volume and is preferred by many US and UK-based traders.

GBP/USD is particularly sensitive to economic releases from both nations and is known for its conformity to technical analysis. Given its high trading volumes from the world’s largest trading centres (London and New York), it consistently offers low spreads during these sessions.

3.   AUD/USD (Australian Dollar vs US Dollar)

  • Average Standard Spread: 1.3 pips
  • Average Raw Spread: 0.2 pips

AUD/USD, or the ‘Aussie’, is unique for being a commodity-linked currency pair. Its price movements are partially dependent on fluctuations in the price of raw materials like coal, iron ore, and natural gas, given that these are some of Australia’s biggest exports.

Besides the commodity markets, this pair offers indirect exposure to Asian markets, particularly China, Australia’s biggest trading partner. These unique features, combined with decent liquidity and low spreads throughout the day, make it one of the top major currency pairs to consider in 2023. 

4.  USD/JPY (US Dollar vs Japanese Yen)

  • Average Standard Spread: 1.4 pips
  • Average Raw Spread: 0.3 pips

The USD/JPY pair, or ‘Gopher’, is the second most traded and offers traders an intriguing contrast between the US and Japanese economies. The Bank of Japan (BoJ) actively buys and sells yen to support its export-driven economy and has kept interest rates at -0.1% in recent years. Meanwhile, the Federal Reserve has raised interest rates to combat inflation, creating an interesting dynamic.

Given these currencies' global influence and different time zones, this pair is one of the most liquid and frequently offers tight spreads.

5.  USD/CAD (US Dollar vs Canadian Dollar)

  • Average Standard Spread: 1.5 pips
  • Average Raw Spread: 0.4 pips

Often referred to as the ‘Loonie’ for its market volatility, the USD/CAD represents the currencies of two major economies and trading partners—the US and Canada. The Canadian Dollar is highly correlated with crude oil as the country is a major oil exporter to the US. A rise in the price of oil typically strengthens CAD against the USD. As such, it offers traders indirect exposure to the oil markets while exhibiting relatively low spreads.

6.  AUD/JPY (Australian Dollar vs Japanese Yen)

  • Average Standard Spread: 1.5 pips
  • Average Raw Spread: 0.4 pips

AUD/JPY is one of the favoured minor currency pairs (cross currency pair) for its contrast. The Australian dollar, linked to commodities, generally appreciates when the global economy expands. On the other hand, the Japanese yen is a safe-haven currency, attracting investors when market conditions seem uncertain. As such, price action can be extreme.

This currency market is more volatile than major Forex currency pairs but less so than many exotic pairs. Similarly, it offers lower spreads than exotic currency pairs, but, at times, higher than majors, meaning it is a happy medium between the stable majors and overly volatile exotics.

7.  EUR/GBP (Euro vs British Pound)

  • Average Standard Spread: 1.3 pips
  • Average Raw Spread: 0.2 pips

Representing the European and British economies, the EUR/GBP is the most traded minor currency pair. Thanks to these high volumes, it offers somewhat tight spreads. However, it is also quite volatile, particularly after the UK decided to leave the EU.

The currency pair is known for its sharp movements in response to data releases from either economy, offering opportunities for traders outside of major pairs.

8.  USD/CHF (US Dollar vs Swiss Franc)

  • Average Standard Spread: 1.6 pips
  • Average Raw Spread: 0.6 pips

Known as the ‘Swissie’, the USD/CHF pair is one of the less volatile pairs since both currencies are considered safe havens.

The Swiss franc is particularly prized for Switzerland's stable financial system. This pair offers opportunities during periods of market uncertainty, offering lower spreads thanks to higher trading volumes. However, when risk appetite increases, this may cause spreads to widen.

Final Thoughts

Balancing low spreads and trading opportunities isn’t always easy.

However, with this list, you should have a clearer idea of which currency pairs are worth considering.

At FP Markets, we pride ourselves on offering competitive spreads across various Forex pairs. Explore the difference in spreads between our Standard and Raw Trading Accounts over on our dedicated Forex Spreads page.

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Source - database | Page ID - 36058

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