Playing on the Forex market can be challenging for a newbie, but if you know how to do it correctly, you have all chances to gain commendable success.
To prevent yourself from losing significant amounts of investment, you have to choose an appropriate currency pair. This brief guide can help you determine what a currency pair is and define the best Forex pair to trade as a beginner and avoid the most common mistakes of new traders.
What Are Currency Pairs?
When we speak about a currency pair, we mean the value of the selling currency item (quote) against another currency item a trader is eager to buy (base). Trading with a particular pair on Forex, you exchange one currency for another, intending to earn on the difference.
Forex trading involves two significant phases: buying and selling, which are taking place simultaneously. A trader defines the needed amount of quote currency by checking a bid price and then buys the required amount of base currency.
When picking the best Forex pairs, the things you should pay attention to are volatility, spread, strategy, and trading objectives. Considering this is the first step towards succeeding in trading currency pairs even without previous experience.
Types of Currency Pairs
The currency pairs can be divided into three groups:
- Major Currency Pairs, characterized by high liquidity and stability (all top traded pairs that involve USD).
- Minor or Cross Currency Pairs, defined by lower liquidity and bigger spreads (AUD/CAD, CAD/JPY, CHF/JPY, EUR/AUD, EUR/CAD, EUR/GBP, etc.).
- Exotic Currency Pairs, characterized by low liquidity, high volatility, which makes them unstable (i.e., EUR/TRY, AUD/MXN, GBP/ZAR, etc.).
If you are a beginner in trading, the Major Currency Pairs are the best pick for you, as they are liquid, stable, and entirely predictable compared to the rest currencies.
Choose one of the following currency pairs to play on the Forex market with minimal risks.
EUR/USD
The Euro and United States dollar pair is the most accessible and stable currency pair to trade, which makes it perfect for beginners and professional traders.
All significant brokers, funds, and financial institutions use the EUR/USD pair as a solid economic system sustains it. But, despite its high liquidity and stability, this pair can be quite unpredictable due to the high volatility.
Numerous trading strategies have been developed with the Euro and United States dollar pair specifically, but it is not recommended to trade much with USD in the pair at once. If the USD rises sharply or falls quickly, the trader can be taken out of the deal.
USD/JPY
Another strong Forex pair to trade with is the United States dollar and Japanese yen pair.
This currency pair is defined by stable and predictable trends over long periods. USD/JPY is considered one of the most liquid instruments in Forex, as it holds about 17% of all transactions.
However, if you just started to trade, you should take this pair very attentively due to its high volatility.
GBP/USD
The British pound and US dollar currency pairs are among the most traded Forex pairs. It holds about 12% of the total market’s trading volume, meaning it is excellent for both beginners and experienced traders. But it would help if you considered the GBP/USD pair differs in a high level of instability, which is suitable for aggressive short-term strategies only.
USD/CAD
Canada has a strong economy making the Canadian dollar stable and relatively predictable. To analyze the changes with the Canadian currency unit, you just need to check out the political situation in the country, as it has much impact on the CAD.
This is why picking the USD/CAD currency pair is a wise decision for beginners in Forex trading.
AUD/USD
The United States dollar and the Australian dollar pair is a good choice for beginner traders. Although the Aussie dollar can’t boast of high stability, this currency unit is significantly predictable compared to other county’s currencies.
But there are potential financial shortfalls, which may influence your results, so you should consider it when trading the Forex.
Conclusion
Keep in mind that each currency pair is essentially the country’s economy, meaning you will have to manage two significant economies while trading with a specific Forex pair.
As a beginner, you should opt for the most stable and liquid currency pair to predict its changes. But, at the same time, the picked pair must have pretty high liquidity so that a trader can avoid significant money losses and stresses.
Knowing this, you can surely succeed in trading currency pairs.
