As a beginner in Forex trading, it is obvious that you will face quite a few challenges. The greatest concern among those is choosing the best currency pairs to trade given the sheer number of forex pairs available. It is difficult to answer the question “What are the best currency pairs to trade?” as it differs from trader to trader. Analyzing different currencies using your trading strategy is the best way to determine which currency to trade.
With more than 200 currencies available in the forex market, traders have a wide selection of currencies to choose from. However, there is no guarantee that every currency available to trade will yield profitable outcomes. So, how do you choose the best currency pairs to trade? Which currency pairs do most traders choose to trade? What makes them worth trading? This article discusses the best currency pairs to trade for beginners in 2022.
What Is Forex Currency Trading?
Forex trading, or foreign exchange trading, is all about buying and selling different currencies in pairs. The ability to buy and sell currencies effectively requires a solid understanding of the relative worth of each currency in relation to its counterpart. That is what defines a currency pair. Currency pairs consist of two currency abbreviations, followed by a value for the “base” currency (the first listed currency) followed by the “quote” currency (the second listed currency).
The setup of currency pairs is always determined by an international code. For instance, a quote of EUR/USD 1.30 refers to the exchange rate for one Euro worth $1.30 (USD). In this case, the base currency is the Euro (EUR), and the counter currency is the US dollar (USD).
As mentioned before, trading Forex involves working with the entire world’s currency supply. However, in particular, there are some currencies that occupy a dominant position in the world financial market. Prior to analyzing the best trading pairs for beginners, it is necessary to understand the most popular currencies in the world of Forex trading.
Most Popular Currencies in the Forex Market
In general, the top or major currency pairs are always from a country or continent with strong economic standing, like the United States, the European continent, Japan, Switzerland, Australia, New Zealand, and Canada. They are the countries that transact the most in various sectors such as goods, services, income, liabilities and assets in the financial sector. These are the reasons for the term “major” to be used by their currencies. Here is a look at eight major currencies along with their underlying traits and characteristics.
- The U.S. Dollar (USD): The U.S. dollar, also known as the greenback, is the most traded currency in the world of forex trading. U.S. dollars can be found in pairs with all major currencies, often serving as the intermediator in triangular currency transactions. US Dollar (USD) is called the greenback because it serves as the unofficial global reserve currency, held by most central banks and institutional investors worldwide.
- The Euro (EUR): The Euro (EUR) is now the second most traded currency behind the USD. Besides being the official currency in most eurozone countries, the euro is also paired with many currencies in Europe and Africa, for the same reason that currencies are pegged to the dollar. The euro is therefore the world’s second-largest reserve currency.
- The Japanese Yen (JPY): Japan’s yen is the most traded currency in Asia, and many observers view it as a good proxy for the underlying strength of its manufacturing and export-driven economy. Forex traders use the yen as a gauge of the health of the Pan-Pacific region as well, considering South Korea, Singapore, and Thailand, given these currencies are traded much less on global forex markets.
- The Great British Pound (GBP): The Great British pound (GBP), also called the pound sterling, is the fourth most traded currency worldwide. The Bank of England is the central bank for the British pound. As a result of the GBP’s high value relative to its peers, it serves as a benchmark currency for many countries and a very liquid component of the forex market. Due to its historically high relative value, the GBP also acts as a large reserve currency.
- The Australian Dollar (AUD): The Australian dollar is a key currency in Asia-Pacific. The AUD is considered to be a commodity currency, which can be affected by price shifts in some of Australia’s major exports. The AUD-USD trading pair accounts for 6.37% of global forex volume, outpacing both the Swiss Franc and Canadian Dollar.
- The Canadian Dollar (CAD): Also known as the loonie, the Canadian dollar is a commodity currency, which means that it is closely tied to commodities markets, such as crude oil, precious metals, and minerals. The loonie often reacts to movements in underlying commodity prices, especially crude oil prices. Traders often trade the Canadian dollar to speculate on the movement of commodities or to hedge positions.
- Swiss Franc (CHF): The Swiss franc (CHF), which is the seventh most traded currency worldwide. The Swiss franc (CHF) is also considered one of the safest assets in the world, as well as one of the most traded currencies on the forex market. Governments and financial institutions hold CHF as a hedge against the volatility of many types of investments and markets.
- New Zealand Dollar (NZD): The New Zealand Dollar (NZD) is the official currency of the island nation of New Zealand. Originally pegged to the US dollar, the ‘Kiwi’ NZD now floats freely on the forex market and is one of the most widely traded currencies worldwide.
You can buy and sell all of the above currencies on the Forex market according to market prices and availability. However, understanding the dynamics and interactions of currencies is essential to making a profit in the Forex market. As a result, choosing major currencies is your best bet if you want to play it safe.
The Best Currency Pairs to Trade as a Beginner
When you are just starting out in the Forex market, it is best to stick with trading the major currency pairs. As you gain more experience in the market, you can start trading with other pairs as well. A beginner can certainly experience ample losses if they encounter some unexpected pairings. The major currency pairs are always preferred since the market movements are easy to predict and you will be able to make consistent profits by understanding their nature.
Major Currency Pairs – Best for Beginners
Major currency pairs represent the most stable and prosperous economies across the globe and offer low spreads that accurately reflect market prices, making them especially appealing to forex traders. Forex beginners often trade major currency pairs as opposed to the less popular ones.
The 7 major pairs are EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/CAD, USD/CHF, and USD/JPY.
Characteristics of the Major Currency Pairs:
To be successful in the Forex market, you need to understand the different currency pairs you trade with. You can simplify your trading process by selecting the major currency pairs since you will be able to access plenty of expert analytical advice and data.
1. EUR/USD – The Fiber
EUR/USD is the most popular and most commonly traded pair in the forex market. The pair also features the lowest spread in today’s market. The best thing about the EUR/USD currency pair is that its volatility is low. This makes it an excellent place for forex beginners. As a result of its popularity, you can find a lot of information online about the EUR/USD, which can help you avoid making mistakes.
2. GBP/USD – The Cable
Profitable pips and the possibility of large jumps have contributed greatly to the popularity of GBP/USD. However, you should realize that higher profits come with a higher risk. Traders describe this currency pair as volatile. However, many Forex traders choose this as their favourite trading pair due to its market analysis capabilities.
3. USD/JPY – The Gopher
The USD/JPY pair is also one of the most widely traded currencies in the forex market because of the prominence of the JPY in Asia and the USD globally. There is a high level of liquidity in this currency pair, so traders can buy and sell it in large volumes without it fluctuating too much in its exchange rate. Furthermore, it has one of the tightest spreads in the forex market, reducing the overall cost of the trade.
4. USD/CHF – The Swissie
The USD/CHF has long been a ‘safe haven’ for forex traders, especially during volatile markets. Therefore, this forex pair is popular among traders when the economic or political situation of a region is uncertain. Despite the fact that the USD/CHF pair is one of the most stable currency pairs to trade and offers many advantages, forex traders prefer to trade other major currency pairs when markets are more stable.
5. AUD/USD – The Aussie
The AUD/USD pair is very suitable for long-term forex trading strategies since it is a steady and slow-moving currency pair. It is most active during the Asian trading session and less active during the New York and London trading sessions. AUD is closely correlated with commodity prices, as AUD is one of Australia’s leading commodities, as a major exporter of iron ore, coal, gold, and aluminium.
6. USD/CAD – The Loonie
USD is the quoted currency here, so this currency pair correlates negatively with the AUD/USD, GBP/USD, and EUR/US. The U.S. and Canada are neighbouring countries with tremendous trading volumes, reflecting the fluctuation in prices of this currency pair. As Canada is one of the largest exporters, keep an eye on oil prices. You should monitor the oil prices to determine when to buy the Loonie.
7. NZD/USD – The Kiwi
The NZD/USD pair is best suited for forex swing trading strategies due to its back-and-forth price movements. Along with the Australian Dollar and the Canadian Dollar, the NZD is a commodity currency, meaning that its exports mainly include raw materials (precious metals, oil, agriculture, etc.). Since the NZD has also been a traditional vehicle for forex traders, it is very sensitive to changes in interest rates.
These are the best currency pairs to trade in the forex market. Despite the fact that many traders prefer different lists of major currency pairs, GBPUSD, USDJPY, and EURUSD tend to be on most traders’ lists as the best currency pairs to trade.
Minor and Exotic Forex Currency Pairs
Given the information presented above, we can conclude that the major Forex pairs contain the most heavily traded currencies, all of which include the US dollar. While the major currency pairs generate most of the trading activity, there are also minor or cross currency pairs that traders invest in.
The third type of currency pair is the exotic currency pair, which includes currencies from emerging economies. Exotic pairs tend to have the lowest liquidity and the highest spreads. Examples of these exotic pairs include:
- USD/CLP – US dollar/Chilean Peso
- EUR/RUB – Euro/Russian Rouble
- GBP/SGD – British pound/Singapore dollar
These exotic currency pairs mainly involve currencies of emerging economies such as the Mexican Peso USDMXN (Mexican Peso), the Russian Ruble USDRUB (Russian Ruble), and others. Exotic currency pairs tend to be more volatile and less liquid than minors, which can result in higher transaction costs for forex traders.
Factors to consider when picking the best currency pairs to trade
To become successful in forex trading in the long run, a beginner should try to take as little risk as possible when trading Forex. Below are some important things to consider when choosing the best currency pairs to trade.
1. Liquidity & Volatility:
From a trader’s perspective, liquidity refers to how easy it is to enter or exit a trade. During periods of high liquidity, the best currency pairs to trade are the ones with lower spreads.
On the other hand, volatility measures how far a currency pair deviates from its average price. The forex markets consist of different currency pairs, each of which is characterized by different levels of volatility. Beginners in forex trading should be aware that volatility can undermine their strategies. A trading strategy that may work for one currency pair may result in losses if it is not tailored for another currency pair.
2. Fundamental and Technical Analysis:
You have to upskill yourself every day if you are to become a master of anything. Forex traders can accomplish this by staying informed at all times. They need to be disciplined and patient to achieve success. Forex traders should base their trading strategies either on fundamental analysis or technical analysis. Since there is always a correlation between a currency’s strength and the economic strength of its country, it is crucial to keep yourself informed of market directions.
A country’s position can be affected by a variety of factors such as political stability, monetary policies, GDP, interest rates, and more. Traders who strategize their trades based on fundamental analysis constantly monitor these factors. Meanwhile, technical analysis focuses primarily on indicators, price action, and/or financial instruments of the country. This is done to predict future price movements.
Finding a reliable broker increases your chances of a successful analysis. As a reputable broker, AximTrade provides its traders with weekly market outlooks and technical analyses to assist them better with adequate market information and valuable insights. Check the full AximTrade Review to find out how AximTrade sets itself apart from its contemporaries in the financial market.
3. Reliable Trading Platform:
Nowadays, all transactions take place virtually; as a result, you need a reliable and trustworthy trading platform. An unreliable trading platform may have a negative impact on your trading. Imagine you have a great trading strategy and plan, but your platform goes down right as you are about to execute a trade.
It is highly recommended that you find a regulated broker with a user-friendly and efficient trading platform. MetaTrader is the most popular Forex trading platform. The MT4 platform is available worldwide and comes with a variety of useful technical indicators to help you analyze charts. Open a forex account now with AximTrade MT4 and turn your learning into profit with reliable trading conditions and flexible leverage.
Despite the fact that there are many best currency pairs to trade, it is highly recommended that you trade most of them before you choose one to focus on. To practice before risking your own capital in Forex trading, you can first open a demo or a Cent account, which will allow you to learn with a small investment. Make sure you thoroughly study the foreign exchange market before making an investment.
Advantages of trading currency pairs with AximTrade
Now that you are familiar with a better understanding of the best currency pairs to trade on the Forex market. The MT4 platform from AximTrade comes with a variety of tools for price analysis, including inbuilt technical indicators and charting tools.
AximTrade provides a comprehensive set of educational resources, technical analyses, and educational materials, making it one of the best platforms for worldwide traders. Discover luxury trading with a minimum deposit requirement, low spreads and a wide range of trading instruments from a leading broker.