FxBrokerReviews.org – Trading with a single reliable currency pair is advised.
Concentrating on one or two commodities at most yields far better results, and understanding how to trade successfully on the most significant and most often traded world currencies can considerably aid you in understanding forex trading over the long term.
As one becomes more at ease and competent as a trader, one can progressively add new currency instruments to their Forex trading portfolios.
What Is A Currency Pair?
The worth of one country’s base currency relative to another country’s base currency is referred to as a currency pair. When trading this pair, one exchanges one currency for another to profit from the discrepancy.
In other terms, users attempt to assess the value disparity between the “quote” and the “base” currency. The currency that a trader intends to sell is the quote currency. A trader is excited to purchase the Base Currency.
Therefore, purchasing and selling are the two main stages of the Forex trading process. They occur at the same time.
The bid price specifies the quantity of quote currency that must be purchased to obtain the necessary base currency. So far, understanding seems to be relatively simple. The majority of newcomers, however, are unable to choose the best currency pairs to trade.
The many currency pairs one can trade and the reasons why some currency pairings might or might not be a great trading option for beginners are covered in this article.
Currency Pair Types
Let’s now establish the three different categories of currency pairs. The principal, minor, and exotic currency pairs are the three categories into which currency pairs are separated.
Major Currency Pairs
Major currency pairs (Majors), also known as top traded currency pairs, are those in which the U.S. dollar is changed alongside the currency of another of the biggest and most industrialized nations.
These currencies represent the world’s most secure and liquid economies. Due to the low risk associated with market uncertainty, they are regarded as the most excellent option for novice traders. The USD on either side of the pair is the primary factor in making these instruments extremely powerful.
The EUR/USD, USD/JPY, GBP/USD, AUD/USD, NZD/USD, USD/CHF, and USD/CAD are a few examples.
Remember that each of these combinations has the USD partnered with a different powerful foreign currency. Over 70% of the entire volume of the forex market is transacted using these major currency pairs.
Therefore, it should be clear that these pairs aren’t just popular with new traders but are also the most widely traded currency pairs overall.
Minor Currency Pairs
The USD is not present on any of the surfaces of these instruments, commonly known as cross-currency pairs. They are regarded as minor couples as a result. The main issue is that they have less liquidity and frequently have wider spreads.
The popular currency pairings AUD/CAD, AUD/CHF, AUD/JPY, AUD/NZD, CAD/JPY, CHF/JPY, EUR/AUD, EUR/GBP, EUR/JPY, EUR/NZD, GBP/AUD, GBP/CHF, GBP/JPY, and NZD/JPY are all included in this category.
One point to remember is that adding the EUR to the pair on any side makes the chosen component more stable and liquid.
Exotic Currency Pairs
As each pair comprises the currency created by a new country, these are the most uncertain and volatile instruments.
Market liquidity, high fluctuation, high spread, and dangers are characteristics of exotic currency pairs. Avoid trading these types of pairings if you are concerned about big spreads and high liquidity.
Instances of unusual currency pairs include EUR/TRY, AUD/MXN, and GBP/ZAR. And once again, from listing big and small currency pairs, we advise starting with more secure instruments.
Details Of Best Currency Pairs To Trade
The most popular currency pair is EUR/USD, which accounts for 24.0% of all forex trades made daily in 2019. 1 The appeal of the EUR/USD pair is due to its representation of the two world’s largest economies: the US and the European Union.
The daily volume of EUR/USD trades guarantees the pair’s high liquidity, often producing narrow spreads. For traders, availability and tight spreads are alluring since they allow for executing huge trades with little disruption to the marketplace.
The mortgage rates set by the European Central Bank (ECB) and the US Federal Reserve are only a few factors affecting the EUR/USD exchange rate (Fed). Since higher rates of interest provide a greater return on their original investment, the currency with higher interest rates will typically be in more excellent supply. The euro would probably strengthen against the dollar if, for example, the ECB had established interest rates higher than the Fed.
The USD/JPY currency pair also referred to as “the gopher,” consists of the US dollar and the Japanese yen. With 13.2% of all daily forex trades in 2019, it is the second-most traded forex pair on the market.
The US dollar is the most widely traded currency worldwide, and the Japanese yen is Asia’s most commonly traded currency. Like EUR/USD, USD/JPY is renowned for its high availability.
The Bank of Japan (BoJ) sets interest rates for the Japanese economy, much like the Federal Reserve and the European Central Bank (ECB), which impacts how much the yen is worth to the US dollar.
The US dollar and the British pound are the two currencies in this pair. Because of the deep-sea connections that were once used to transmit the bid and ask prices between London and New York, the GBP/USD is also known as the “cable” pair. The GBP/USD pair accounted for 9.6% of all daily currency transactions in 2019.
The stability of the GBP/USD currency combination, like that of the majority of other currency pairs, stems from the relative robustness of the British and American industries. The pound will probably strengthen versus the dollar if the British economy expands more quickly than the American one. The contrary is true, though, if the American economy performs better than the British.
The quotation price of GBP/USD is influenced by the different borrowing costs set by the Bank of England (BoE) and the Fed, similar to the first two most common currency pairs on this listing. The value of the GBP/USD currency pair can be significantly impacted by the ensuing difference in interest rates between the pound and the dollar.
The Australian dollar is represented by the currency pair AUD/USD, also known as the “Aussie.” In 2019, it accounted for 5.4% of every day’s forex trades. The worth of Australia’s exports, particularly those of metals and minerals like coal and iron ore, accounting for a significant amount of the nation’s gross domestic product.
Likely, a decline in the price of these products on the global market would result in a corresponding reduction in the worth of the Australian dollar. This would result in a higher US dollar, making it the cheapest forex pair to trade one Australian dollar in the AUD/USD currency combination.
The difference in interest rates between the Reserve Bank of Australia (RBA) and the US Federal Reserve impacts the AUD/USD exchange rate as it has on the currency pairs already stated. For instance, if American interest prices are low, the US dollar would likely decline against the Australian dollar and would need more US dollars to acquire one.
Because of the loon bird that features on Canadian dollar coins, the US dollar and the Canadian dollar are paired together and are popularly referred to as the “loonie” (USD/CAD). In 2019, 4.4% of all forex trades per day were USD/CAD exchanges. Since oil is Canada’s principal export, the value of the Canadian dollar is directly correlated with the price of crude.
Canada may make a sizable amount of US dollars through its oil exports because oil is valued in US dollars on international markets. As a result, the Canadian dollar will likely appreciate relative to the US dollar if oil prices rise.
A basic rule is that when oil prices rise, the US dollar tends to decline since more US dollars must be exchanged into foreign currencies to purchase the same quantity of oil. Due to the strong correlations between the Canadian dollar and the price of oil, pricey oil will probably strengthen the Canadian dollar.
As a result, when trading USD/CAD, traders should maintain a check on the price of both Brent crude and US crude because any oil market changes will probably impact this forex pair’s exchange rate.
The USD/CNY currency pair, which combines the US dollar and the Chinese renminbi, or yuan, accounted for 4.1% of all stock forex trades in 2019.
Since the commencement of the US-China trade war, the yuan has generally been losing ground to the US dollar. This is partly attributable to the Chinese government, which allowed the yuan to weaken, knowing that doing so would lower the cost of exports and expand the country’s already considerable market presence in nations other than the US.
Anyone can trade the USD/CNH currency pair with IG; CNH is the yuan’s offshore counterpart that is changed outside China’s core. It is known as CNY only when the yuan is exchanged in the onshore Chinese market. The Chinese government has historically not exerted as much control over CNH as it has over CNY, making it potentially more volatile. It may be a better option for speculative trading due to its volatility.
Investors should monitor developments in the US-China trade conflict since they could impact the value of this currency pair.
The USD/CHF currency pair also referred to as the “Swissie,” consists of the US dollar and the Swiss franc. The Swiss financial system has traditionally been a sanctuary for traders and their money, making USD/CHF a popular currency combination.
As a result, traders frequently resort to CHF during rising market volatility but usually show less interest in the Swiss franc during growing market stability. As CHF increases versus the USD due to more significant investment, the price of this pair may decline during periods of greater volatility.
CHF is not as commonly traded as the six currency pairs listed above because it is primarily used as a safe haven or in economic downturns. But in 2019, 3.6% of all daily forex operations were in the USD/CHF currency pair.
The Hong Kong dollar is compared to the US dollar using USD/HKD. From 2016 to 2019, this pair’s trading turnover doubled, from 1.5% to 3.3% of all everyday currency transactions.
The demonstrations in Hong Kong that headlined 2019 may have contributed to the increase. The Fugitive Offenders Amendment Bill’s intended adoption and claims of police violence against the residents of Hong Kong were the causes of the protests.
The protests started around a month before the data was gathered. Therefore it is likely that they had an impact on the USD/HKD trading volume. This might be partially explained by the fact that many traders and analysts concentrated on the Hong Kong dollar due to the heightened media attention, believing that any news from the town would impact the currency’s value.
A connected exchange rate is a unique arrangement that links the worth of the Hong Kong dollar to the US dollar. HK$7.75 to HK$7.85 to US$1 is the range in which the Hong Kong dollar may vary, and traders may profit from any price changes within this range.
The EUR/GBP pair combines the euro and the British pound and is frequently regarded as one of the most brutal pairs to predict prices. Due to the UK’s close vicinity to Europe and the resulting close trade links between these two economies, EUR and GBP have historically been linked.
Despite the alleged challenges associated with anticipating its movements, EUR/GBP transactions still accounted for 2.0% of all daily trades in 2019, ranking it as the ninth most traded currency pair on the list.
The US dollar is pitted against the South Korean won in the tenth pair on the list, USD/KRW. This is the first year that the USD/KRW pair has entered into a list of the top ten most traded currencies, and in 2019 it accounted for 1.9% of all daily forex transactions.
Since the turn of the century, South Korea’s industry has expanded, and as of November 2019, it is now the fourth largest in Asia and the eleventh largest in the world. This may cause the increasing USD/KRW activity as traders and speculators look to gain exposure to markets other than Japan, China, and Hong Kong.
What Currency Pair Is The Simplest To Trade?
The currency pair to trade that is both the simplest and most steady is EUR/USD. It is the most excellent option for both experienced and beginning traders.
Due to its low spreads and high liquidity, this currency combination is among the most popular.
But this combination also has high volatility and is difficult to predict. The pair is the primary trading instrument used by all central banks, brokers, and other financial organizations, making it even more unstable.
Even though EUR/USD is one of the most actively traded instruments, several other prominent currency pairs have comparable liquidity and tight spreads.
In this article on the best currency pairings to trade for beginners, we advise choosing a significant pair of currencies you can stick with for a considerable time before diversifying your trading to other instruments once you have mastered trading pairs.