Concise Guide to Best Forex Pairs for Beginners
Are you interested in the best forex pairs for beginners but unsure where to start? Do you want to learn which ones are the popular ones?
If so, you’ve come to the right place. In this blog post, we will break down the basics of forex pairs, explain how they work, and give you several tips on choosing the best ones for your trading goals.
What are forex pairs?
Forex pairs are the combination of two currencies traded against each other in the foreign exchange market.
For example, EUR/USD is a forex pair that is the exchange rate between the euro and the US dollar. The first currency in a pair is called the base currency, and the second is called the quote currency.
The price of a forex pair shows how much one unit of the base currency is worth in terms of the quote currency.
Why are they important?
Forex pairs are important because they allow traders to speculate on the changes in the value of different currencies. By buying or selling a forex pair, you can profit from the difference between the opening and closing prices of the trade.
Forex trading can also help you diversify your portfolio, hedge against risks, and take advantage of global events and trends.
Choosing the major forex pairs to trade
There’s no definitive answer to this question, as different traders may have different preferences and strategies. However, some general factors that you should consider when choosing a forex pair are:
#1. Liquidity:
This refers to how easily you can buy or sell a Forex pair without affecting its price. The more liquid a pair is, the lower its spread (the difference between the bid and ask prices) and the faster its execution.
The most liquid pairs are the ones that involve major currencies, such as USD, EUR, JPY, GBP, CHF, CAD, AUD, and NZD.
#2. Volatility:
This refers to how much a forex pair fluctuates in price over a time period. The more volatile a pair is, the higher its risk and reward potential.
Many factors affect market volatility, such as economic data, political events, market sentiment, and supply and demand.
Typically, the most volatile pairs are the ones that involve exotic currencies, such as TRY, ZAR, MXN, NOK, SEK, and RUB.
#3. Correlation:
This refers to how a forex pair moves with another pair. Correlation can be positive or negative. Positive correlation means that two pairs tend to move in the same direction, while negative correlation means that they tend to move in opposite directions.
Correlation can help diversify your risk, hedge your positions, or identify trading opportunities. Generally, the most correlated pairs are the ones that share a common currency or have similar economic regions.
Based on these factors, some of the best currency pairs to trade are:
- EUR/USD: This is the most popular and liquid pair in the world, involving two of the largest economies and reserve currencies. It has low spreads, high volatility, and a strong correlation with other major pairs. It is also influenced by various economic indicators and events from both Europe and the US.
- GBP/USD: This is another highly traded and liquid pair that involves two of the oldest and most influential currencies. It has moderate spreads, high volatility, and a strong correlation with other major pairs. It is also affected by various economic and political factors from both the UK and the US.
- USD/JPY: This is one of the most traded and liquid pairs in Asia, as it involves two of the largest economies and financial centers in the region. It has low spreads, moderate volatility, and a strong correlation with other major pairs. It is also sensitive to various economic and geopolitical factors from both Japan and the US.
When dealing with the forex market, beginner traders need to choose the forex major pairs to trade. By focusing on stability, liquidity, and correlation, amongst others and popular pairs, such as EUR/USD and GBP/USD, novice traders can gain valuable experience while minimizing risk.
Remember to conduct thorough research, stay updated on market trends, and develop a sound trading strategy to optimize your success in the exciting world of forex trading.
Find out more about forex trading by opening a demo account today.