Foreign exchange (forex) trading is both an exciting and daunting venture, especially for beginners. One of the most crucial concepts to grasp when engaging in the forex market involves currency pairs—the assets you trade.
Currency pairs represent the comparative value between two distinct currencies and thus play an important role in forex trading. As a beginner, you need to choose the best currency pairs to trade to achieve a significant gain in your trading outcomes.
To help you decide, we’ll look into the best currency pairs opted by beginners in forex trading. Knowing the best currency pairs to trade can help increase your chances of making a well-informed decision in the Forex trading market.
A Quick Overview of Forex Trading
Forex trading mainly involves buying and selling foreign exchange currencies. These currencies are traded primarily in pairs, in which a trader determines the value of one currency by comparing it to a separate currency. Traders earn from price fluctuations that occur during market opening times.
Read More: TradersUnited – How Traders Make Profit Through Forex
Choosing the best currency pair is crucial for a novice trader. Since trading forex involves risks and opportunities, staying informed and adapting to market conditions is critical. Understanding the factors to consider when selecting the best forex currencies and implementing necessary risk management strategies can help you form a strong foundation that best suits your trading style.
What is a Currency Pair?
Currency pairs like EUR/USD usually have two similarly abbreviated currencies. The first one listed in the pair is called the base currency, while the second is the quote currency.
As a beginner, understanding how the exchange rate between currency pairs works will help you determine how much of the quote currency you would need to buy a unit of the base currency.
Read More: TradersUnited – Buying and Selling Currency Pairs in Forex
Factors to Consider in Choosing a Currency Pair to Trade
As with other processes, some factors can influence exchange rates between forex pairs. Among them are market sentiment, geopolitical events, and economic indicators. Knowing these factors is key to helping traders make the best decisions when deciding the best currency pairs to trade.
As a beginner, you should know the following factors to consider when choosing the major currencies to trade:
1. Liquidity
One of the key aspects that moves currencies is their liquidity. You should focus on the most traded currency pairs with tight spreads to ensure better pricing and smoother transactions.
2. Volatility
As a beginner, you may choose to start with major pairs that do not undergo extreme price fluctuations. However, forex pairs with these fluctuations pose a greater risk of a less satisfactory trade.
3. Correlation
Another thing to consider when looking at forex currencies is the correlation between currency pairs, also known as currency correlation.
Some forex pairs potentially move in similar patterns, which could diversify your portfolio to include uncorrelated pairs, hence spreading the risk. This strategy is crucial for your risk management as your capital is exposed to multiple positions.
Trading Style and Economic Conditions
As a beginner, you should know your trading style and goals when choosing currency pairs. In either short-term or long-term trades, currency pairs have distinct characteristics that may or may not align with your strategy.
Additionally, it would help you a lot to understand the economic situation of each country involved in the currency pair to help you better decide which currency pairs to trade.
What are the Most Traded Currency Pairs in the Market?
Below are the top five currency pairs ideal for beginners:
EUR/USD
EUR/USD is among the major currency pairs offering high liquidity and tight spreads, earning its place as one of the most traded currency pairs popular among novice traders.
In fact, according to the Bank of International Settlement (BIS) survey in 2022, the euro-dollar pair made up 22.7% of the overall forex market share.
USD/JPY
As one of many forex currency pairs favoured by beginners, USD/JPY boasts lower volatility and a stable price movement compared to other currency pairs. This currency pair is popular for traders seeking a more predictable currency.
GBP/USD
GBP/USD is a major pair that offers rewarding trading opportunities thanks to its significant price movements. If you’re looking for more diversity in your trades, GBP/USD is a viable option for you.
AUD/USD
As one of the best currency pairs to trade, AUD/USD offers relatively low volatility and strong trends, which makes it an attractive option for beginners searching for steady growth potential.
USD/CAD
This major currency pair appeals to new traders interested in currencies related to commodities. Having been correlated with oil prices, USD/CAD is a currency that works well for beginners interested in how commodity-linked currencies affect forex markets.
Get the Most Out of Your New Forex Trading Journey
TradersUnited offers a safe space for new traders to learn and grow in a reliable community that cares for a genuine online trading experience as they tap into their potential to become one of the best forex traders worldwide.
Learn and engage with other traders and make guided decisions in choosing the best currency pairs to trade with our platform.
Are You Ready to Trade?
As a novice trader, it’s necessary to understand the benefits and risks associated with trading currency pairs.
For instance, if you’re looking for a currency that makes it easier to enter and exit trades, major pairs like EUR/USD, USD/JPY, and GBP/USD offer high liquidity. This means that there are always buyers and sellers for these currency pairs. Despite having higher liquidity, these forex pairs are also accompanied by lower volatility compared to exotic pairs.
While this may seem beneficial for beginners looking for more stability, these currency pairs have smaller price movements, limiting profit potential. Moreover, global economic conditions and news releases often affect these major currency pairs, making them vulnerable to sudden price fluctuations.
Related: TradersUnited – Trading News Releases: How Forex News Trading Works
To manage risks effectively, practice diversification in your trades. The more currencies you add to your portfolio, the more you can minimize the impact of possible losses from any single trade. More importantly, stay informed about global economic trends that could influence Forex currency values. Practicing these risk management tactics allows you to navigate the forex market easily and confidently.
FAQs
Which currency pairs are best for beginners in Forex trading?
The major currency pairs are ideal for novice forex traders. Since most USD pairs are currently moving in the direction where the price could change and break out, deciding which currency pairs are best for trading must be assessed daily. What may seem like a good currency trade today may not be the best tomorrow.
What are the best Forex trading options for beginners?
As a new trader, it’s recommended that you start with more stable pairs that have high liquidity, low transaction costs, and predictable price movements. One major currency option for you to consider is the EUR/USD, which offers high liquidity, low volatility, and low spreads.
How many currency pairs should a beginner trade?
Ideally, a beginning trader should trade up to two forex currency pairs daily. Since each currency pair has its own way of moving on the charts, familiarity with each pair boosts your chances of making a profitable forex trade.
Explore More Currency Pairs With CommuniTrade
While there are a lot of forex currencies out there, gauging your trading style and staying informed about the forex market situation comes in handy when choosing the best currency pair that works for you.
Learn the best currency pairs to trade from reliable traders in the community. At CommuniTrade, you’ll get to interact with and learn directly from other traders in the community so you can make well-founded decisions on which major currency pairs to trade.
Access unbiased insights from traders worldwide and unleash the inner global trader in you with CommuniTrade.
