Choosing the Best Currency to Trade for Beginners
It appears that the majority of Forex newbies do not see anything special about trading currency pairs. They underestimate one of the most powerful trading instruments ever. Sometimes, things may get even worse. A beginner starts to trade ANY currency pair without diving deeper into financial analysis. The asset is truly the best one to get started. But the key to success is to find your perfect match!
The main question here is "what is the best currency to trade for beginners". Is it the iconic EUR/USD or a bit more exotic GBP/JPY? Selecting the right pair is not just pointing at the first one just because you like the way it sounds. When choosing the best currency to trade for beginners, you need to focus on fundamental features such as predictability, volatility, and other crucial aspects.
So, today we are going to find out how to find the best currency pair to trade as well as the latest Forex trends that dominate in the market in 2020. But first… Do you really know what the currency pair is?
What Is a Currency Pair?
The term refers to the value of one particular currency unit against another. When you trade this pair, you buy one currency for another intending to pocket the difference. In other words, you try to compare the value difference between the "quote" and the "base" currency:
- The Quote Currency – it is the currency item that a trader is going to sell.
- The Base Currency – it is a currency item a trader is eager to buy.
So, the trading process involves two major phases: buying and selling. They take place simultaneously although the currency pair itself is considered as a separate trading instrument like gold, crude oil or stocks. There is a bid price that specifies the amount of quote currency a trader needs to buy the required amount of base currency.
Nothing difficult here. However, a few beginners are able to pick the best match right from the start. Why is it actually important to pick the right pair? Why can't you just select the first one available and start trading? Find the answers in the next section.
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How to Find the Best Currency Pair to Trade
While the currency price results in the economic and geopolitical situation, the key challenge here is to predict crucial changes that may affect the bid. A few beginners can do such forecasts. For this reason, most traders prefer economically stable and liquid units established by the world's strongest economies.
As a result, we have the 8 major currencies that are of great trading potential:
- USD (US Dollar)
- CAD (Canadian Dollar)
- EUR (Euro)
- 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. As a result, we have 27 different pairs to choose from. However, the Forex market trading majority is represented mainly by 18 core pairs. This is what makes the instrument extremely flexible and manageable.
Trading hours are another crucial factor to consider. The time you trade will totally depend on the pair you choose. While major market centers are located in Asia, Europe, and the United States, time zones are certainly the aspect to take into account. Choose the one that suits you the most in terms of location, market opening and closing hours, etc.
Now, let's have a closer look at the major, minor, and exotic currency pairs.
Major Currency Pairs
They 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 string is the USD on any side of the pair. They may include:
- USD/GBP;
- USD/JPY;
- AUD/USD and more.
These are certainly a good option for a start. At least, newbies will be able to figure out how the market works.
Minor Currency Pairs
These instruments do not have USD on any of the sides. This is why they are considered as minor pairs. You have probably heard some traders calling them cross-currency pairs as well. The key challenge here is the fact that they come with lower liquidity and usually with bigger spreads. On the other hand, they may let you generate higher revenues but only in case you are able to predict the price movement.
The list of minor currency pairs includes:
- EUR/GBP;
- NZD/CAD;
- GBP/JPY and others.
By the way, having 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 the emerging country. If you are not afraid of wide spreads and extreme liquidity, simply go for it.
Here are some exotic currency pair examples:
- EUR/TRY;
- AUD/MXN;
- GBP/ZAR.
Once again, to get started, we recommend choosing more stable instruments from the list of major and minor currency pairs.
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 #1 choice not only among beginners but also for professional traders. Yet, it has been one of the most traded currency-based FX instruments thanks to tighter spreads and liquidity.
However, EUR/USD is not perfect. It comes with a high volatility level. Moreover, it is very hard to predict especially when the financial market is so uncertain. This is mainly because all major banks, brokers, and other financial institutions use the pair as the major trading instrument making it more and more unpredictable.
For this reason, sticking to a single pair is wrong. The best bet is to use several instruments and create a more flexible and versatile trading strategy. If you still have difficulties in choosing the right match, check out the latest financial trends that introduce the best currency pairs to trade in 2020.
Best Currency Pairs to Trade in 2020
Although EUR/USD is one of the most traded instruments, beginners may still choose from other popular currency pairs that also come with tight spreads and liquidity. Here are the most popular and best currency pairs to trade in 2020:
- USD/GBP – the currency pair has gained popularity among traders due to possible large jumps. Besides, the instrument delivers profitable pips and detailed market analysis out of the box. On the other hand, beginners should note that the pair can be quite risky to trade.
- USD/JPY – this pair is mainly associated with low spreads. Also, it is more predictable than other currencies regarding trend comparison. If you opt for this pair you may expect a bunch of exciting trading opportunities.
Selecting the best-matching pair to trade can be difficult for beginners. They need to take into account various factors they might not even understand. This is where our FX trading guide for newbies will be the best solution.
Stay tuned! Also read about:
- Best Books about Forex for Beginner Traders
- Basic Forex Terms to Get Started
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.