Entering the world of forex trading can feel like stepping into a labyrinth without a map. The web is filled with chunks of information and knowing where to start can be a challenge. As a beginner, one of the most important decisions you will make is choosing the right currency pair for trading. Your path to success can be easier if you start by trading the best Forex pairs. This article will guide you on the path of selecting the right ones.
Forex Pairs Explained
In the forex market, currencies are always listed and traded in pairs. The reason for this is straightforward: the value of a currency is relative and can only be measured against another currency. Following this, a basic question arises: what Forex pairs should a beginner focus on?
The Major Pairs
The world of forex has several different currency pair categories: the Majors, Crosses, and Exotics. For beginners, the Major pairs provide the best entry point. Major pairs are formed by the world’s most traded currencies, each containing the USD on one side.
Of these, the most traded forex pair is the EUR/USD. The EUR/USD represents the amount of USD needed to buy one euro. It is influenced by a myriad of factors like economic news reports from both the U.S. and Europe. Owing to its high liquidity, spreads are small, and the pair is less volatile.
The USD/JPY is another popular choice for beginners. This pair represents the US dollar against the Japanese yen. Trading volumes are significant, and hence the spread is usually smaller. Moreover, the economic health of the USA and Japan significantly influence this pair’s price movements.
The GBP/USD, also known as “Cable”, represents the exchange rate between the British pound and the US dollar. It’s known for its volatility and high trading volume. However, its rapid price movements can offer great opportunities for profits if moved in the right direction.
Why Choose Majors
All major pairs share a few essential characteristics. First and foremost, they feature very high liquidity, which means low transaction costs (spreads) and significant capacity in terms of volume. High liquidity also means enough volatility for significant price movements within a day (volatility within the range of 50-100 pips is typical for these pairs). This makes the Majors very suitable for beginners.
Understanding and selecting the right forex pair is critical in your trading journey. The EUR/USD, USD/JPY and GBP/USD offer high liquidity and small spreads, making them ideal for beginners. As we always say, ‘A good start is half the battle.’ When starting your forex journey, always follow trusted advice, practice, and never be afraid to make mistakes. They are stepping stones to your success journey. Happy trading!