So now that you have started your trading, you have a wide choice of instruments to trade from. In FX, there are the major currency pairs like the EURUSD, GBPUSD, USDJPY, and USDCHF. These are the ones to have the most liquidity as far as the markets around the world are concerned. But should you also trade the same? Or should you go for a totally different pair? That is the choice that sits in front of the new trader.
Best Forex Currency Pairs to Trade
As said before there are 4 major pairs in the FX trading industry. These are the ones that corner around 70% of the total volume in the FX industry, the most-traded forex pairs, and have high liquidity. But in theory, there are 100s of FX pairs and many brokers offer commodities and CFDs as well which means that the trader has a choice of 100s of instruments to choose from and find which ones he is comfortable with.
As a general suggestion, it is better to start with the major pairs as they have high liquidity. It means that you can get in and get out whenever you want without the risk of a large slippage due to lack of liquidity which can happen with other pairs. The high liquidity also ensures that the movements in these pairs are generally stable and they are not very volatile which makes trading on them comparatively easier.
If you are not comfortable trading these pairs, then you can try the pairs related to the Canadian dollar. Again, it is pretty much a matter of personal choice on which pairs you want to trade but if you do plan to choose the Canadian dollar, then be ready to have a dull Asian and European session of trading as the Canadian dollar picks up some volatility only towards the US session. There are other pairs to choose from with many traders preferring to trade gold as it is available with almost all brokers and exchanges around the world. You need to see which pairs your trading plan is well suited to and then after proper backtesting and forward testing, you can go for any pair that you are comfortable with.
Major Cross-currency Pairs or Minor Currency Pairs
The 4 most traded pairs of EURUSD, GBPUSD, USDCHF, and USDJPY are called the major currency pairs as they are the cross pairs of some of the most important currencies in the world and hence traded widely and they are volatile and have good liquidity in all FX trading sessions.
All other FX pairs are generally classified as either minor currency pairs or exotic currency pairs. The minor currency pairs include USDCAD, GBPJPY, EURJPY, and a few others while the exotic currency pairs include USDTRY, USDILS, EURTRY, etc. The exotic pairs are the most illiquid and risky ones but it should not come as a surprise that these pairs are traded mainly for this reason. But as a beginner, we would suggest that you stay away from trading such pairs until you are confident and strong with your trading skills and also manage to gain consistency.
Most Popular Forex Pairs for Beginners
For beginners, it is better to start with currency pairs that are not too volatile. This will give you time to analyze their movements and come up with a good trading strategy in the long run. As a beginner, more than making profits, it is important for you to learn as much as you can, and for that, you need to spend time in the market and study the market movements and see how each economic factor affects the price movements of FX pairs.
Among the major pairs, we would suggest that you start with EURUSD which is comparatively less volatile. It is basically the Euro against the dollar and this pair is likely to be affected by the situation and news from the Eurozone and the US and also what the Fed and European Central bank say and do. Though this might look like a lot to track at the same time, this is an important lesson for you to learn and the idea is to make it as painless as possible.
Just as you get overwhelmed when you are driving a car for the first few times, when you start forex trading, choosing the best forex pairs to trade would look like a challenge. But the more time you spend on each, the easier it is likely to become. The idea is to spend as much time in the market as possible so that you can find your way around and this will then be used as an input when you begin to study more volatile pairs. Likewise, EURJPY is also something that is generally less volatile. Of course, we are talking in relative terms as periods of high volatility surround some kind of announcement are likely to disrupt the trading. It is better to stay away from trading at new times so that you don’t get caught in the volatility which might rip your account.
Best Times to Trade
Apart from choosing the best currencies to trade in forex, it is also very important for you to understand the best times to trade as these are quite related to each other. If you choose to trade the major pairs, then there is no need to worry as they are volatile and liquid during the entire trading day except at the fag end of the US session.
But if you choose to trade a pair that is outside of the major pairs, then the pair would determine what the best time to trade for you is. For example, if your trading pair contains EUR as the dominant currency, then it is likely that you will see opportunities to trade only after the Euro session begins. Likewise, if you choose the Canadian dollar, then it would become liquid only towards the US session and this is important to know so that you don’t push for a trade during the other times when no trades exist and this could lead to further losses in your account.
The British pound is also another currency that becomes very active only after the European session begins while the Japanese Yen is active right from the Asian session. Watch out for news releases and as a beginner, you shouldn’t trade and don’t have open positions when news is released. Though the price movements at that time might look very tempting to watch, it has been found that beginners invariably lose their account by trading news. Once you gain maturity after having spent enough time in the market, then it could probably be the right time to start looking to trade with pairs and times of high volatility.
Find Out More About Trading FX Pairs
We have covered most of the stuff related to FX trading pairs above but the traders also need to remember that there are another set of instruments called CFDs. Many types of instruments can be traded and one class of such instruments is what is called CFDs. The problem with CFD trading especially at certain unscrupulous traders is that it can be traded with high leverage and very low margin. 100s of FX pairs are available as CFDs along with commodities and crypto as well and this generally overwhelms the beginner trader and leads him in different ways.
Most of the traders are not able to come to terms with the variety right at the start and like a kid in a toy store, they want to trade anything and everything and this approach invariably leads to huge losses. Volatility and leverage are two-edged swords that can cut both ways. So unless you are very experienced and are in a position to understand what they can do to you and your account, it is very risky to trade any of these at high leverage and so the trader is better off staying away from such instruments and such high leverage. If possible, you can start by trading with an account that gives you a 1:1 margin but if that is too little for you, we suggest that you trade with as low a margin as possible. Though this may not sound as juicy as others, this is the best way to trade.
We have highlighted the most popular forex pairs to trade and when you should be trading them and what you should watch out for and what precautions you should be taking. More than the pair that everyone likes to trade, it is important to find the pairs that you are comfortable with trading. It could be a major or minor or exotic pair but that shouldn’t matter as long as you know what you are doing and are comfortable in doing that day in and day out consistently on a long time basis.
Make sure that you choose the right pairs to trade, don’t try to trade every instrument that you see as this could split your attention across too many pairs and this is not good for a beginner. You need to focus on a few pairs and even just a couple of pairs at the start so that you can understand how the market works and how the various pairs move and this understanding is key for you to survive in the FX market.