As there are various currencies in the world, there are so many choices on which currency pairs to trade in the market. We understand the hassle and confusion when starting your first forex trading and not knowing which to trade. Well, worry no more. We are here to help you distinguish the types of currency pairs and which the top choices are.
You have probably heard the phrase “the world never sleeps.” This phrase has been around for ages, and it applies to everything that makes the world go round, including money. All the money in the world is constantly traveling, transferring from a person’s pocket to another. It perfectly portrays the phrase “money never sleeps,” as made famous by the movie Wall Street. That is why if you put the two phrases together, the result would be the Forex Market.
The forex market never closes, and it will stay open until it only needs to facilitate uninterrupted trading. When entering this market, every forex trader must know that a currency exchange rate is always quoted in a currency pair. Examples of these are USD/JPY, GBP/USD, and EUR/USD.
Basically, you buy or sell in currency pairs when trading in the forex market. You can check out our previous article if you need to learn more about the basics of forex trading.
Many forex traders often make the same mistake that could lead to losing money. No matter how good they are or even if they have mastered all the strategies in forex trading, they don’t realize the importance of deciding correctly over which to trade and what direction it is going.
The reality is that there is no perfect currency pair as it varies with each trader. We can’t tell you which exactly the best pairs are, but we can help you determine which is ideal for you. The key here is taking your time to analyze against your own strategy.
Note that each currency pair has its own personality. Currencies reflect based on the events that are happening in their countries and their relationship with each other. If you are a beginner, the most important factors you need are stability and liquidity. It is recommended to find a pair that fluctuates fairly predictably but isn’t incredibly volatile. It should have high enough liquidity that it is not going to be difficult to trade or have expensive spreads.
With that said, here are the top choices of currency pairs to trade.
Being the largest currencies in the world, the EUR/USD has the highest order flow and best liquidity in the entire forex market. It has a very low bid/ask spreads and always has available units for even large trades due to its popularity.
This currency pair is particularly ideal for beginners. As the trading market would unlikely shift or influence the pair, it is easier to analyze and create strategies to take advantage of its quality.
Also known as the Gopher, USD/JPY is extremely liquid as it is the second most traded pair in the foreign exchange market. This is advisable for beginners that want to learn about volatility. However, it is not a good idea to spend a lot of money on the pair until you got used to its behavior.
Political issues affect both the currencies. The Japanese yen tends to go up and down sharply, compared to the US dollar. You can take advantage of the patterns that the JPY generates by predicting its next move based on both time and season.
This pair tends to be fairly predictable because of its liquidity and it is backed by stable economies. It is also considered as one of the largest markets in the world. Traders often use support and resistance level trading order to better understand the market with this pair.
GBP/USD and EUR/USD mirror each other because of their relationship. The Euro and British pound both perform virtually identically. Thus, it is recommended to use GPB/USD to hedge EUR/USD, or don’t trade both currency pairs at all.
AUD/USD attracts both beginners and advanced traders. The Australian economy has boosted a significant amount of growth within the country. The currency has made marks and predictable rises against other currencies.
However, there are some headwinds and financial difficulties. While this pair can be a bit challenging, it still has its own unique benefit: volatility. You can test various strategies with this pair, considering that it shows long periods of stable growth.
USD/CAD is often called a commodity currency pair, and its liquidity is a lot less. Both currencies fluctuate strongly based on commodities, since Canada is one of the largest oil producers worldwide.
But because these two currencies are close geographically, the currencies don’t diverge very often. When they do, it creates opportunities for profit. And because Canada has a relatively strong economy, its currency is mainly influenced by political events. Traders must be aware of issues that can arise potentially with the country.
This pair is suitable for beginners for its stability, and for skilled traders because of its many differences in trading and commodities.
As you noticed, all of these currency pairs are always paired with the USD. That is because these pairs are generally good for both beginners and skilled traders. If you want to raise the bar higher and take it to the next level, you can explore more with other currency pairs, as long as you understand the risks in forex trading.
Lastly, now that you know the top choices of currency pairs to trade, all you need now are strategies and technical indicators, such as moving average, Relative Strength Index (RSI), and Oscillators. These are essentials to every trader as they proved to be effective in forex trading.