The Best Currencies for Scalping Forex

This article is part of our guide on how to use scalping techniques to trade forex. If you haven’t already we recommend you read the first part of our series on forex scalping.

Scalping is a highly specialized activity which requires a favorable technical and fundamental setup to yield its full potential. In the previous section we examined the necessary preconditions sought from a broker, here we’ll take a look at the currency pairs which are best suited to scalping strategies.

In general, the best currency pairs for scalping are those that are not prone to very sharp movements, or if they are, such movements are less frequent. In that sense, the best group for scalping is the group of major pairs discussed below, and among them, the most liquid and least volatile one is the EURUSD pair (see live graph).

a. Majors

This group includes pairs such as the EURUSD, the GBPUSD, the USDCHF, and others which are formed by currencies of the most powerful and dominant economic powers in the world. Although the JPY (Japanese Yen) pairs can also be examined in this group, they behave differently and we’ll examine them under the heading of carry pairs.

The main property of the majors pairs is liquidity. Their second characteristic is relatively subdued responsiveness to market shocks. An event which can cause a 100 pip movement in the AUDJPY pair will move the EURUSD by 30 points usually, sometimes less. The major pairs are traded all over the world, by almost all banks and important institutions (since they are often reserve currencies). They are the bulky giants of currency market in terms of trade volume, and move slowly.

Scalpers who prefer to trade ranges, or to exploit slow, and small movements in currency pairs for conservative profits can concentrate their activities in the major pairs.

b. Carry pairs

Carry pairs are liquid, but volatile. Pairs such as the EURJPY or USDJPY are traded all over the world, and trading is activity is hectic, but they are also very volatile, because many financial actors use the Japanese currency to borrow and invest in various risky assets. As a result, when there is a market shock these pairs react in an excessive fashion which is difficult to interpret for trading decisions, especially so in the short time frame favored by scalpers.

The carry pairs are traded mostly for interest income. Although it is possible to scalp them as well, it is not a great idea because at times spreads widen so rapidly that even a stop-loss order cannot protect our account from a significant loss. The sudden widening of spreads is not unique to carry pairs, but while in the EURUSD pair it is often seen after the non-farm payrolls release, or major interest rate decisions, in carry pairs it is more frequent, deeper and longer lasting.

We do not advise beginners to scalp with the carry pairs. Experienced scalpers can trade them with typical trend following strategies in order to exploit breakouts and other sharp movements.

c. Exotic Currencies

Exotic is a term used in the options market, but we’ll use the term to discuss the comparatively rare, less liquid, and less well-known forex pairs which are mostly unsuitable to scalping. This group includes such volatile pairs like NOKUSD (NOK being the Norwegian Krone), the Russian ruble, the BRLUSD pair (with the Brazilian Real), and many other lesser known ones.

This group is not suitable to scalping because unpredictable price gaps are frequent, and it is difficult to use money management strategies in the short term. Especially beginners should avoid them to avoid getting scalped while trying to scalp the market.

Next >> The Best Times for Scalping Forex >>

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Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.