Which Forex Pairs Should You Avoid Trading

  • May 22, 2023
Which forex pairs to avoid

In the forex market, there is a considerable range of different currency pairs you can trade. In fact, most brokers offer a range of major pairs, minor pairs and exotic pairs to choose from. However, just because you can trade a pair, doesn’t mean you should! Not all forex pairs are created equal, and this is something most newbie traders don’t realize. In this article, we are going to take a look at exactly which pairs aren’t worth trading, why and how to keep yourself clear of non-profitable forex pairs! Let’s get into it…

Which Forex Pairs Should You Best Not Trade?

 As stated above, not all forex pairs are created equal and there are drawbacks of trading certain pairs. This is rarely explained to traders, as typically the whole emphasis on profitability is placed upon being able to create a profitable trading plan – rather than the pairs you’re focusing on. As proved by many algorithmic traders, there are profitable pairs and unprofitable pairs for every trading strategy. Some quants run strategies on EURUSD because the strategy is only profitable on EURUSD and no other pairs, for example. This leads many profitable traders to filtering down the number of pairs they actually trade in their portfolio of strategies. The most profitable traders I know personally typically only trade a basket of 3-4 currency pairs, but they’re extremely aware of the fundamental picture of these currencies.

So, let’s take a look at the various types of currencies to trade…

Exotic Forex Pairs

Exotic forex pairs are typically less discussed and less frequently traded in the retail forex space. An example of an exotic pair would be EURPLN. Of course, the Euro is heavily traded, but the Polish Zloty is not. Generally speaking, exotic forex pairs have very low trading volume. This leads to unpredictable moves within the market, making them incredibly hard to profitably trade. 

If you do happen to have a strategy that is profitable on exotic pairs, you need to factor in the spread. Spreads, even with an ECN broker, can equate to a huge number of pips and swallow your profits within trades. 

For some of our 6 and 7 figure funded traders, it’s worth considering the impact of low liquidity within the markets too. If your order is struggling to get filled completely, getting in or out of the market, this could be an issue. Compounded with the large spreads, your trading strategy will most likely no longer be profitable on these pairs!

With that being said, it’s very much worth back testing your trading strategy to ascertain whether it is actually profitable on an exotic pair. If so, you may open yourself up to more profits in the markets!

Minor Forex Pairs

Minor forex pairs are much more traded than the exotic pairs mentioned above – however, much less than major pairs like EURUSD.  Generally speaking, minor pairs respect price action and fundamental analysis much more than exotic pairs, but can still be fairly hard to trade consistently and profitably when compared to major pairs.

When it comes to spreads, they’ll be higher than you’d see on Major pairs. For instance, spreads on GBPNZD could be up to 6 or 7 pips at times, depending on your broker. These larger spreads and lower volume can ruin profitability for many traders, but there are still traders with robust systems managing to remain profitable with minor pairs. In fact, many of our funded traders are doing so!

Forex Pairs With Political Unrest

Many traders like to try to get involved with positions on forex pairs that have political unrest. For example, the Turkish Lira (TRY) over the last few months. These trades have landed traders in a world of trouble previously due to a range of factors. Firstly, these market conditions are incredibly hard to predict, meaning you’re essentially gambling account balances on the hope that you have read the market sentiment correctly.

Secondly, spreads will be large and massively inflated within these currency pairs – eating away at whatever profits you’ve obtained and creating an issue for your stop loss and take profit placements.

Thirdly, some brokers can actually close the trading of these pairs with political unrest. This, in some cases, means if you have open trades within the markets – they’ll be held open, and you will not be able to manage or exit your positions. This is rare but can cause huge issues and obviously large losses for traders.

Lastly, traders’ leverage can be reduced if they’re involved with traders in pairs with political unrest. Although trading with lower leverage isn’t an issue, if you’re swing trading other positions on your account, this may cause you some leverage issues.

We recommend strongly that any of our prop firm funded traders stay away from potentially dangerous trading pairs.

How To Know If A Forex Pair Is Profitable?

Everything outlined above is a rough guide to shaping where you should start in your trading when it comes to forex pairs. Start with the major pairs like EURUSD, GBPUSD, USDJPY and even XAUUSD. If you aren’t getting enough trades and would like more frequency, start playing with adding some minor pairs into your trading plan.

But how do you test minor pairs?

Well, simply, it’s a back test. You must back test your trading strategy (as objectively as humanly possible), whilst filtering in the spreads etc. for hundreds of trades over a long period of time. This can be done quickly using back test trading software, and even faster if you can code your trading system into an EA/robot. Once you’ve got a sample of a few hundred trades per each pair you’re testing, you’ll have a rough idea of whether that pair is worth continuing to trade! I cannot stress enough, especially for scalpers and intraday traders, filter in the spread and commission into your back tests. Every so often, this is the difference between profitability and a loss within the market.

In Summary – Which Forex Pairs Are Worth Avoiding?

In conclusion, some forex pairs are most likely worth avoiding, such as exotic pairs, minor pairs and any currency pair with political unrest. As a rule of thumb, start trading on the major pairs and if you need further trades to increase your trading volume, have a backtest of minor pairs and work your way through the pairs like this.

Are you looking to become a funded trader? Work with Lux Trading Firm now!