What is the best currency to trade for beginners? This may seem like an arbitrary question based on preference alone. In this article on the best currency pairs to trade for beginners we will explain why this is not the case at all.
When choosing the best currency to trade for beginners, you need to focus on fundamental things such as predictability, volatility, and other crucial aspects.
Just as beginner traders are encouraged to concentrate and learn one aspect of Forex at a time, beginners are not recommended to trade too many currency pairs at the same time.
It is advisable to rather trade with one solid currency pair.
Focusing on one or two instruments at most gives much better results, and knowledge of successful trading on the major and most traded currencies in the world will help you greatly to understand trading in Forex in the long run.
You can gradually expand your Forex trading portfolio with new currency instruments later, as you feel more comfortable and more confident as a trader.
What is a currency pair?
The term currency pair refers to the value of one country’s currency unit against another country’s currency unit.
When you trade this pair, you buy one currency for another with the intention of making a profit on the difference.
In other words, you try to compare the value difference between the “quote” and the “base” currency. The Quote Currency is the currency item that a trader is going to sell. The Base Currency is a currency item a trader is eager to buy.
The act of Forex trading, therefore, involves two major phases: buying and selling. They take place simultaneously.
There is a bid price that specifies the amount of quote currency a trader needs to buy the required amount of base currency.
So far, not difficult to grasp right?
Most beginners, however, don’t know how to pick the best currency pairs that they should trade.
In this article we will discuss the types of currency pairs that you can trade and why different kinds of currency pairs may or may not be a good trading choice for beginners.
Types of currency pairs
First let’s define the three types of currency pairs that exist. Currency pairs are divided into 3 groups: The major, minor, and exotic currency pairs.
Major Currency Pairs
Major currency pairs (Majors) or top traded currency pairs, that includes the U.S. dollar and the currency of one other of the most significant and economically developed countries.
These currencies represent the most stable and liquid economics in the world. For this reason, they are supposed to be the best choice for beginner traders thanks to minimum risks affected by the market uncertainty.
The main feature that makes these instruments potentially strong is the USD on any side of the pair.
Some examples include the EUR/USD, USD/JPY, GBP/USD, AUD/USD, NZD/USD, USD/CHF, USD/CAD
Take note once again, that every one of these pairs include the USD paired with another strong world currency.
These major currency pairs account for more than 70% of the total turnover of the Forex Market.
So, obviously these pairs aren’t only popular with beginner trades but are actually the most popular kinds of currency pairs to trade with every level of trader.
Amongst these popular currency pairs, the most popular pair by far would be the EUR/USD. This pair is the most traded currency pair worldwide.
This pair accounts for over one-third of the total volume of transactions on Forex. This is due to, in great part, the size and transparency of EU and US economies.
These are certainly a good option for a start. At least, newbies will be able to figure out how the market works.
The benefits of trading this pair are:
Predictability of EUR/USD trend. As noted above, the economy of the EU and the US are among the most transparent in the world.
Coupled with the high liquidity of the instrument makes the EUR/USD one of the most predictable currency pairs in Forex as well as having the lowest spread.
The pair of U.S. dollar and Japanese yen is also a strong major currency pair to trade. This pair, which accounts for 17% of transactions on the foreign exchange, is the second level of liquidity tool in the Forex market.
Its benefits include:
Favorable terms and conditions. As noted above, USD/JPY is among the top three most liquid instruments in Forex, which determines low spreads.
The Dollar/Yen pair is amongst the top three most volatile instruments in Forex market.
Trading with USD/JPY currency pair is not recommended for beginner traders because of its high volatility but is a great choice for more experienced traders.
The British pound/US dollar currency pair accounts for about 12% of the total trading volume on the Forex market.
The GBP/USD has a high degree of volatility and instability of prices.
It is one of the most traded currency pairs with professional Forex traders focused on short-term aggressive strategies. It is one of the best currency pairs to trade.
This pair has much less liquidity than the other pairs mentioned.
The AUS/USD is also known as commodity currency pairs, as its price is closely tied with gold and oil prices.
Australia is a large producer of gold and therefore is highly dependent on gold prices.
Minor Currency Pairs
These instruments, also known as cross-currency pairs, do not have USD on any of the sides.
This is why they are considered as minor pairs. The key challenge here is the fact that they come with lower liquidity and usually with bigger spreads.
This group includes the following popular currency pairs: 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.
One thing to keep in mind is that having the EUR in the pair from any side also adds stability and liquidity to a chosen instrument.
Exotic Currency Pairs
These are the most unpredictable and unstable instruments, as each pair includes the currency established by an emerging country.
Exotic currency pairs are characterized by low liquidity, high volatility, high spread and risks. If you are afraid of wide spreads and extreme liquidity, then stay away from these types of pairs.
Here are some exotic currency pair examples:
Once again, to get started, we recommend choosing more stable instruments from the list of major and minor currency pairs.
How to find the best currency pair to trade
Most traders, regardless of level of trading experience, prefer economically stable and liquid units established by the world’s strongest economies.
As mentioned before, major currency pairs account for more than 70% of the total turnover of the Forex market.
The 8 major currencies with the best trading potentials
USD (US Dollar)
CAD (Canadian Dollar)
GBP (British Pound)
CHF (Swiss Franc)
NZD (New Zealand Dollar)
AUD (Australian Dollar)
JPY (Japanese Yen)
All of the above-mentioned can form a currency pair to trade. There are 27 different pairs that you could combine to make but the majority of Forex trading is made up of 18 core pairs.
One thing to keep in mind when picking a currency pair to trade with are its trading hours or trading sessions as it is known.
With the major market centers located in Asia, Europe, and the United States, time zones are an important aspect of trading to keep in mind.
Make sure that the location, market opening and closing hours, of the market suits you.
What is the easiest currency pair to trade?
EUR/USD is not just the easiest, but also the most stable currency pair to trade. It is the best choice not only among beginners but also for professional traders.
This is one of the most traded currency pairs due to tight spreads and liquidity.
But this pair also comes with a high volatility level and is hard to predict. All major banks, brokers, and other financial institutions use the pair as the major trading instrument making it even more unpredictable.
Although EUR/USD is one of the most traded instruments, you may decide to choose from other popular currency pairs that also have tight spreads and liquidity.
Here are some other great currency pairs to trade in 2020
USD/GBP – this currency pair has gained popularity among traders since it an deliver profitable pips but may be risky to trade for beginners.
USD/JPY – this pair is known for its low spreads and is predictable than other currencies.
Now, let’s sum up all the above and determine the most predictable and the best Forex currency pairs to trade for beginners and experienced traders.
In our opinion, best currency pairs to trade for beginners are:
The main factors to consider when choosing the best currency pair to trade include volatility, spread, trading strategy and the level of difficulty of forecasting its market direction.
Try picking a pair to start with that you are comfortable with following and learning a lot about, as well as making sure that the pair is conducive to your trading time frames.
You don’t want to pick a currency that opens in the middle of the night if you aren’t willing to consistently trade at that time.
In this article on the best currency pairs to trade for beginners we recommend sticking to a major currency pair you can commit to for quite some time, then expand trading to other instruments once you are adept at trading with that pair.