Trading Forex is a complex business requiring deep knowledge of financial markets and the specifics of its currency pairs. To have a better understanding of the currency pairs you must track macroeconomic news that can affect these pairs, and use indicators to find the best entry and exit points. Another crucial thing is to select currency pairs that are easy to trade and provide a high level of liquidity and modest volatility. Some Forex pairs, mainly the Swiss Franc in it, are very messy and require a higher level of experience to trade while major pairs like EURUSD and others are slightly more predictable. Let’s dive deep and find out critical details about the best Forex pairs for new traders.
Understanding Forex Pairs
Currency pairs are an essential part of the Forex market. Forex market in simple terms is a huge currency exchange that is operated online and where traders and other market participants can exchange one currency for another currency. While banks and corporations need Forex to exchange between different currencies to pay salaries or buy commodities, Forex traders are trying to make money by speculating on exchange rates. Forex pair is a combination of two currencies traded against each other. For example, the EURUSD (Euro against the dollar) consists of two currencies where EUR is called the base currency, and the USD is called quoted currency. EURUSD represents the price a trader has to pay to buy 1 EUR. Let’s take an example: if EUR USD has a price of 1.1010, it means you will need to pay 1.1010 USD to buy 1 EUR.
Major, Minor, and Exotic Currency pairs explained
Depending on the trading volume and availability the currency pairs are divided into three types called major pairs, minor pairs, and exotic pairs. The four major pairs are the EUR/USD (Euro against the US Dollar), USD/JPY (US Dollar against the Japanese Yen), GBP/USD (British Pound against the USD), and USD/CHF (Dollar against the Swiss Franc). Major pairs have super high liquidity which means they are characterized by high trading volume and tight spreads. The spread is the difference between the Bid and Ask prices. The Bid price is the price you pay when selling the pair while the Ask price you pay when selling the currency pair.
Simply put, if a trader clicks on a buy button to buy EURUSD the price they pay is the Ask price and bid when they are selling the asset. The difference between ask and bid prices is called spread and traders pay it twice when they open a trading position and when closing the trading position. Because of this nature traders should prefer brokers with lower spreads to make their strategies more profitable. Minor pairs also known as cross-currency pairs are pairs that exclude US dollars. Popular minor pairs are EURGBP, AUDNZD, and CADJPY. These pairs are less liquid but have still got enough liquidity to buy and sell at any time without issues. Because they are less liquid the spreads are usually higher on minor pairs resulting in higher fees for trading them.
Currency pairs from emerging and developing countries are called exotic pairs and they are known for low liquidity and highest spreads. Some popular currencies making exotic pairs include the Mexican peso (MXN), South African rand (ZAR), and Turkish lira (TRY). Since exotic currencies are less liquid with higher spreads it is not recommended for beginners to start trading exotics as it bears higher risks of losing money because of spreads and gaps. Gaps happen when a price misses price levels and it can greatly affect trading performance if the stop loss is passed without triggering it. This is why exotics are not simple currency pairs that can be traded by newbies.
Understanding Forex pairs will help traders make informed trading decisions
Factors to Consider When Choosing Forex Pairs for Beginners
As mentioned above some factors like spreads can have a major impact on trading performance especially for beginners. Spreads can determine if a trading position will be a profit or loss. Volatility is another key concern when selecting a pair from a beginner trader’s perspective. High volatility can form gaps or make big movements quickly evaporate trader’s accounts giving them less time for proper decision-making and risk management approaches. Beginners need more time to make sense of what is going on in Forex markets and then react to it properly, if the price of a pair is moving fast it leaves less room for errors and judgments making it much harder for beginners to properly manage their trading activities. The third most important thing for beginners when selecting currency pairs is liquidity. Highly liquid pairs tend to move slowly and there is less probability of big players manipulating pairs’ prices. EURUSD is the currency pair with the highest trading volume and no one player can manipulate its price.
The best Forex pairs for new traders
We have composed a tier list for the Forex trading pairs for beginners which every newbie will have to read carefully not to miss something. These pairs below are the most liquid and come with the lowest spreads on the market making it cheap to trade on Forex markets.
When trading Forex as an absolute beginner the best pairs for trading must include the EURUSD. If we had a tier list of currency pairs with exceptional liquidity, low volatility, and lowest spreads possible then no other pair is as cheap to trade as EURUSD. That’s why it is recommended as one of the most traded Forex pairs for beginners in the world, its movements are influenced by macroeconomic factors from the USA and Europe.
The US Dollar and Japanese Yen are the second most popular currencies that have high liquidity, modest volatility, and offer low spreads. Although their spreads are not as low as EURUSD, USDJPY can be still considered by beginners as one of the main trading instruments. Low volatility coupled with low spreads is ideal for beginners to develop trading skills in a slow-paced market and adapt to a trading career slowly.
GBPUSD is another great major trading pair that has relatively bigger movements, but high liquidity and low spreads. For beginners, GBPUSD can also be considered a suitable major pair as it is affected mainly by the US and British economic events. It was easy to trade GBPUSD during Brexit as almost all selling signals would be a successful trade. GBPUSD also has higher volatility than other major pairs offering more opportunities for beginners. The beginner Forex trading pairs should come with high liquidity, low volatility, and low spreads.
Other Forex Pairs for Beginners to Consider
The US dollar versus the Canadian dollar is also a very popular trading pair that is heavily affected by oil prices. This is mainly because Canada is one of the major oil exporters and its currency’s strength is impacted by oil prices. Since USDCAD has lower volatility than other major pairs and its price can be predicted a bit better than other pairs it can be a pair beginners do not want to miss.
The Australian dollar and US dollar are popular Forex pairs influenced by economic indicators from both Australia and the United States. AUDUSD has relatively high volatility offering opportunities for profitable trades. Although minors are not as liquid they still can be considered as Forex trading pairs for beginners.
When trading a currency pair it is important to track each of the currency pairs’ fundamental news and avoid trading during highly impactful news like inflation rates, employment changes, central bank interest rates, etc. This will make sure beginners are not caught in volatility price swings that can inflict unrecoverable losses on the inexperienced. But fundamentals are a great way of determining the possible price trends in the medium to long term and can be used as an indicator that increases decision accuracy.
Forex Pair Trading Strategies for Beginners
Forex markets can be incredibly difficult to predict and it is required that traders approach Forex with a high level of caution and strong risk controls. The best way to start a trading career is to develop a comprehensive trading strategy that addresses entry and exit rules, risk management, and trading psychology. A trading strategy is a tool that helps traders become consistent and take a disciplined approach to trading. Beginners must develop trading strategies and then execute their rules flawlessly. Several trading strategies can become very profitable when implemented with proper risk control. The best Forex pairs for new traders are major pairs that have high liquidity and low spreads and fees.
Trend following Forex strategies
Trends are market conditions when prices tend to move in a constant direction either upside or downside. Trend-following strategies are relying on traders’ ability to identify trends in currency pairs and buy or sell accordingly. The trend is your friend until it lasts is the main mantra of trend trading. But markets are trending only 30% of the time making trend-following strategies’ win rate lower than other strategies. But since the rewards are generally several times the risk, trend following can be still very profitable in the long term. Using indicators and trend lines during analysis can help tremendously in identifying if the market is trending or not. Indicators are mathematical formulas that take into the price and conclude what it is doing. The most popular indicators are moving averages that provide traders with insight into how far the price is from average prices for a certain period or if it is trending. Another popular indicator called Moving average convergence divergence (MACD) helps traders identify trends.
Breakout trading strategies
To understand breakout strategies we have to first understand support and resistance levels. Support and resistance are key levels where the price tends to have a difficult time passing through. Resistance is the highest level where the price could not move higher and support is the lowest level. When the price breaks these levels traders follow its movement in what is called breakout trading. Technical indicators like Bollinger bands can help traders identify key levels and make trading decisions based on them. Another old indicator that can be used for breakout strategy is called Donchian Channels created by Richard Donchian, which show the high and low key levels and when prices break these channels it is possible to enter a trade and follow it. In this case, too, major pairs are recommended as the main FX pairs for beginner traders.
The third popular trading approach is swing trading strategies. The swing strategy involves holding a position for several days or even weeks to take advantage of short to medium-term price movements in currency pairs. Several indicators allow traders to see recent price swing levels, but the main method is technical analysis and drawing levels on the chart.
Tips for Trading Forex Pairs as a Beginner
Forex trading can be a challenging endeavor as it requires extensive knowledge of both fundamentals and technicals. Selecting proper trading pairs can determine if a trader is a winner or a loser. The best Forex pairs recommended for beginners are ones with low spreads, modest volatility, and high liquidity. Major currency pairs such as EURUSD, USDJPY, and GBPUSD are characterized by low spreads, high liquidity, and low or modest volatility and are the best starting Forex pairs for new traders. Understanding Forex pairs is crucial and traders must track macroeconomic news that can affect these pairs and use indicators to find the best entry and exit points. Highly liquid Forex pairs move slowly giving traders enough time to react to market developments and reduce the chances of market manipulations by big players. Brokers that are regulated and offer low spreads are the best for beginners. Beginners are not recommended to start trading exotic pairs as they are characterized by high spreads and low liquidity increasing chances of losing money.
FAQs on the best FX pairs to trade for absolute beginners
How many pairs should a beginner trade?
Since tracking a chart of one currency pair is demanding enough already, the maximum number of trading pairs for beginners is 1 or 2. Make sure not to trade many pairs at the same time as it is difficult to manage several opened positions at the same time. Lowering a mental burden for beginners is crucial to develop trading skills and accumulate enough experience.
Which Forex pair is easiest to trade?
The pairs with low spreads, low volatility, and high liquidity are easy FX pairs to trade. The major pairs like EURUSD, GBPUSD, and USDJPY give beginners enough time to analyze markets and make wise decisions.
Which Forex pair pays the most?
This depends on the trading strategy and trading volume. Any trading pair pays a living to an experienced trader who has considerable trading experience and manages risks properly. For beginners, the main focus should be to develop trading skills and become disciplined rather than chasing profits. Ultimately, the most profitable Forex pairs are pairs that have low spreads and are characterized by strong trends.