FxBrokerReviews.org – Forex trading involves buying and selling of foreign currencies from all across the world. Forex currency trading is always done in pairs known as currency pairs. Each of the currencies is defined by an ISO code which makes it easy to universally identify the currency, for example, the US dollar is denoted as USD. A typical currency pair comprises a base currency and a quote currency.
Several currency pairs are traded in the forex market. All the pairs are categorized into three main divisions; major currencies, cross currencies, and commodity. The best currency pair to trade for beginners is EUR/USD, it is also the most traded currency pair in the market. According to market research, the EUR/USD made up 24.0% of daily forex trade in 2019.
This article will help you understand how forex is traded in the market and which are the cheapest forex pairs to trade right now in the market.
What are Forex Currency pairs?
Before we get to the list of the best currency to trade right now, it is important to understand what are forex currency pairs and how they work.
Currency pairs involve two currencies, whereby one is a base currency and the other is a quotation. In simple words, one currency is compared to another currency.
Let us get a clear understanding of the currency pairs, with an example;
So, for instance, you want to trade EUR/USD. The EUR here will be the base currency, and the USD will be the quote currency.
So, if the quote for EUR against USD is 1.15, it means that 1 EUR can be changed for 1.15 USD. here, it is important to note that the rates of every currency are not constant and they keep on changing based on several factors. The EUR can increase while the USD decreases or vice versa.
How does a currency pair work?
The forex market is never dormant and the trading happens all day based on the time zones of various countries. As already mentioned above forex involves the buying and selling of currencies, and the price of both the base and quote currency keeps on moving.
All the trades occur with the purchase of one currency and sale of another, but you buy the currency pair itself as a single unit. The currency pair is the instrument that is bought or sold rather than the individual currencies of a country.
The Currency pairs are quoted based on the price that has been placed as a bid and ask price. A bid is a price at which the forex broker will buy the base currency from you in exchange for the quote currency. The ask or the selling price is the price at which the base currency is sold in exchange for the quote currency.
When is the best time to buy or sell a currency pair?
The trading week begins at 5 PM EST on Sunday and continues till 5 PM Friday. Even though a trader can trade forex at any given time, not all times are considered to be the best time to trade currency pairs.
It is recommended to always trade when the market is active. By active, we mean when 4 or more markets are opened simultaneously. During this period the market will have the most price fluctuations in the currency pairs. Whereas when only one market is open there are minimum fluctuations and the pips are tight. therefore, to get the cheapest forex pairs to trade, traders usually buy and sell when the market is active.
What are the best currency pairs to trade for beginners?
EUR/USD is the most popular and actively traded currency pair in the forex market. It represents the two biggest economies of the world; the American and the European economy.
The pair has the highest trade volume, which also means that it is very liquid. High liquidity brings along tight spreads which are favorable for many traders as it helps them to make large trades. The exchange rate of both the currency pairs is determined mostly by the interest rates decided by the European Central Bank (ECB) and the US Federal Reserve (Fed).
Since this currency pair is the strongest pair of all it is traded in almost all the markets like the UK, the US, Hong Kong, Singapore, and Japan, as well as Australia.
It is the currency pair of Britain and the US. The pair is also known as the ‘cable’. The Pound-Dollar is one of the oldest currency pairs traded in the forex market. The currency pair accounts for more than 11% of the total trades in the forex market and is said to stand as the 3rd most liquid currency pair.
The exchange rate of the currency pair is also determined by the strength of their respective countries. If the British economy is stronger than the American dollar then the pound will be more powerful than the dollar and vice versa.
The USD/JYP currency pair is the pair of the American and the Japanese economy. Also known as the ‘gopher’ it is the second most traded currency pair in the forex market.
The Japanese Yen is heavily traded in all of Asia and the US dollar is the most popular traded currency in the world, therefore the pair is highly liquid and holds almost 13% of the overall trade in the forex market.
The Boj or the Bank Of Japan sets the interest rates of the Japanese Yen based on which the exchange rate moves. Trade dynamics and macroeconomics also play an important role in determining the movement of the currency pair.
USD denotes the US dollar whereas CHF is the swiss franc commonly known as the swissie. The currency pair is popular due to the well-known stability of the Swiss Franc in the forex market. But, most traders only tend to this currency pair in times of market volatility and therefore it only accounts for about 3.6% of the total currency exchange.
The Swiss national bank mostly guards the USD/CHF currency pair. Almost all the major price movements depend on the decisions taken by the SNB. the federal reserve or the FED is the central bank of the US which also monitors and determines the price of the currency pair.
- AUD/ USD
The currency pair commonly known as the ‘Aussie’, stands for the Australian dollar and the US dollar. The currency pair is traded in high volumes, has minimal spreads, and is also very liquid. The value of the Australian dollar hugely depends on the value of its exports with metal, iron ore and coal, and more.
The Chinese economy also plays an important role in influencing the prices of the currency pair as a majority of the Australian exports are consumed by China. Also, the reserve bank of Australia and the US Federal bank determine the exchange rates.
The currency pair represents the paring of the American dollar and the Canadian dollar. It is commonly known as the ‘loonie’ pair because of the loon bird which is on the Canadian dollar. The strength of this currency pair mainly depends on the price of oil as it is the main exporter of Canada.
While trading with the USD/CAD pair traders is advised to keep track of the prices of Brent Crude and Crude oil. Any fluctuation in their price will move the cost of the currency pair.
The following currency pair represents the US dollar and the Chinese renminbi, commonly known as the yuan. The currency pair represented almost 4.1% of daily forex trades in 2019.
The US-China trade war has led to a depreciating value of the Yen. it is making the country’s exports cheaper and thus increasing their already sizable market share in countries other than the US.
The European and the British currency pair represents a minor currency pair as it does not include the US dollar. The pair does not come under the best currency pairs to trade for beginners due to its unpredictability. The pair’s unpredictability comes due to the strong trade arrangement between Europe and the UK.
What factors affect the currency pairs?
Traders should always keep a check on the market to know the price movements of the currency pairs. Knowing well about the factors helps to understand which are the best currency pairs to trade for beginners as well as experienced traders. Take a look at all the factors that you should keep in mind before you start trading in the forex market;
- Interest Rates
The interest rates decided by the central banks of the currency you are trading in majorly affects the price of the currency pair. Interest rates also determine financial stability and countries that have a strong economy, tend to attract more investors, thus making it an active market to trade in.
- Political stability
The political condition of a country also plays a significant role in influencing the price of the commodity pair. A country that has political unrest attracts fewer traders hence the market turns less active.
Corruption, trade wars, and elections usually cause instability, which affects the forex market significantly. Politics is a huge factor in forex trading because governments can affect the economy, which may lead to appreciation or depreciation of currency values.
- Economic Factors
Economic conditions of a country like the GDP, trade agreements, international relations, and even the rate of employment affect the exchange rate of the currency pairs.
Higher exports are a sign of increasing demand for the country’s currency. And when the
currency of a currency rises the exchange rate also rises. Therefore, high exports see a rise in the exchange rate, and high imports lead to a fall in the rate.
- Terms of Trade
A trade deficit can also lead to a fall in the exchange rate. A country’s terms of trade improve if its export prices rise at a greater rate than its import prices. This results in higher revenue, which causes a higher demand for the country’s currency and an increase in its currency’s value. This results in an appreciation of the exchange rate.
Which is the cheapest forex pair to trade?
EUR/USD is the most traded pair with around 20% of the total trading volume on Forex. It is also the currency pair that has the lowest spread. The currency pair is also considered to be the most liquid pair due to the high trade volume.
Beginners who are looking to make the first trade in the forex market should go for EUR/USD. The currency pair is the strongest pair of all; it is traded in almost all the markets like the UK, the US, Hong Kong, Singapore, and Japan, as well as Australia.
The best currency to trade right now: Tips and Tricks
If you are a beginner, you should always go for the markets that are liquid and have heavy trade volumes. Also, it is important to keep track of all the factors that influence the price of the pair. Here are a few tips to make the best trade;
- Develop your trading skills and be well aware of the market
- Adopt a trading methodology and style.
- Choose a good forex broker, with numerous tools, charts, and technical analyses.
- Carefully choose the currency pair that you want to trade in the market.
- If you are unsure, take the help of advanced features like copy trading and social trading.
- Don’t make hasty decisions and always take small loses.
Four major currency pairs are the most actively traded in the world. These include the EUR/USD, GBP/USD, USD/JYP, and USD/CHF. Apart from these, there are some commodity currency pairs like USD/CAD, AUD/USD, and NZD/USD.
According to our team at Forex Broker Reviews the best currency to trade right now is the EUR/USD.