5 Forex Pairs To Trade as a Beginner.
As a budding Forex trader, finding the best currency pairs to trade might seem confusing. The common misconception amongst new entrants into the Forex space is that trading currency pairs are based on preference. However, other factors like volatility need to be considered when choosing pairs to trade.
Before delving into which currency pairs to trade, let’s begin with an introduction to currency pairs. This should give you a firm grasp of various pairs and which ones to get started with.
What is a Currency Pair?
A currency pair is a quotation of the values of two currencies with the value of one currency quoted against the other. The first currency is the base currency while the second one is the quote currency. For example, AUD/USD is a currency pair. However, AUD is the base currency while USD is the quoted currency.
The idea behind trading currency pairs is to compare both currencies in a bid to figure out how much of the quote currency is needed to acquire a unit of the base currency. Basically, as a forex trader, you are selling one currency to buy the other.
There are 3 groups of currency pairs available in the Forex market. The major, minor and exotic currency pairs.
The Major Currency Pairs
These are the top traded forex pairs. They are a combination of the US dollar (USD) and the currency of another economically developed country. There are seven major currency pairs — EUR/USD, NZD/USD, USD/CAD, AUD/USD, USD/JPY, GBP/USD, USD/CHF
These are the most popular currency pairs in the Forex market and present minimal risks to traders. Hence, a lot of beginners opt to trade these pairs.
The Minor Currency Pairs
Also known as cross-currency pairs, these forex pairs do not have the US dollar on either side. These pairs come with bigger spreads and lower liquidity. A distinct feature of these pairs is that they include at least one of the world’s other three major currencies, including the Japanese yen, Euro, and British pounds.
Examples of minor currency pairs are, AUD/CAD, AUD/CHF, AUD/JPY, AUD/NZD, CAD/JPY, CHF/JPY, EUR/AUD, EUR/CAD, EUR/CHF, EUR/GBP, EUR/JPY, EUR/NZD, GBP/AUD, GBP/CHF, GBP/JPY, NZD/JPY.
The Exotic Currency Pairs
Exotic currency pairs feature the US dollar alongside the currency of any of the developing countries. These currency pairs are usually unstable and come with high risks.
Examples of exotic currency pairs are USD/HKD, USD/SEK, USD/SGD
Now that you have a pretty good idea of the various groups of Forex pairs, which ones should you get started with as a new trader?
5 Forex Pairs to trade
Dubbed fiber, EUR/USD is famous for its high stability and ease of trade making it the most traded currency pair in the Forex market with its high liquidity and tight spread. Technical analysis to assess the price action for this pair is relatively easy to perform.
USD/JPY is known for its low spreads and fair predictability compared to other currencies. It’s also a very stable pair and accounts for about 20% of transactions on the Forex market. It is, however, one of the currency trades that is mostly impacted by political issues as the JPY has a tendency of swinging fairly sharply both upwards and downwards compared to the USD.
Also one of the most popular currency pairs in the world, the GBP/USD tends to mirror the EUR/USD. That is, the EUR and GBP will both swing upwards. GBP/USD is easy to read because when it trends, it does so for long periods.
This pair is highly influenced by the oil prices in Canada meaning if the oil price in Canada increases, the value of the Canadian dollar increases. The reverse is true as well. The USD/CAD is also a very stable pair.
This is the third most popular currency pair and is popular for its predictable gains against other currencies. Caution should be exercised as there have been some shortcomings on its part.
As a budding trader, it is important to analyze each currency pair carefully and get acquainted with all the factors affecting them before placing your trade. This is an important piece if you are to achieve any success trading.
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