On Forex traders exchange currency pairs from all over the world. This fact is already known to most beginners who are looking for a suitable Forex broker. Many brokers, such as Brokstock or AvaTrade, put 50 to 80 currency pairs for trading in options and thus overwhelm most beginners. Not every pair can be traded optimally in any given market phase. The following article will familiarize you with the most important Forex pairs and describe their advantages when trading.
What Makes a Good Currency Pair?
Almost all experts agree that standard currency pairs are much more suitable for beginners than, for example, exotic currencies. The main reason is that these currencies have a certain stability, even though the respective currency rates can of course fluctuate by several percent within a day. In addition, the performance of standard currencies is much better to assess than it is, for example, the case with more exotic currencies from Africa. There, it can happen that the value of a currency fluctuates by 20 or more percent in one day. Therefore, we have listed the most suitable Forex pairs for trading for beginners below.
7 Best Forex Currency Pairs
All in all, we will describe 7 currencies that are the most popular on Forex and suitable for beginners.
This currency pair is the most traded in the world, it is extremely liquid and therefore has low spreads. In this case, the euro is the base currency, while the US dollar takes the function of a quote currency. As a rule, the EUR/USD pair is represented by a number, which is currently 1.06. This shows that 1 euro currently buys a little more than 1.06 US dollars. The decimal places 3, 4, and 5 are pips, which are only important for traders and brokers. The 5th decimal place represents tenths of pips and is usually only visible on trading platforms.
The EUR/USD currency pair is very popular among traders worldwide because the rate is constantly moving and offers opportunities. Meanwhile, the ideal trading hours are limited to the European session and the American trading period. From 07:00 to 17:00 CET, most of the price-determining transactions take place. In the Asian session, trading is mostly quiet in comparatively narrow channels.
There are two aspects worth noting about the US dollar/Japanese yen pair. First, the exchange rate for all yen pairs is displayed with only 2 digits after the decimal point. Secondly, the USD assumes the function of a base currency here – and the yen that of the quote currency. The representation with 2 decimal places is due to the relatively low value of the yen compared to the other majors, for which the experts offer various explanations. For traders, this fact and its interpretation are less important.
Much more problematic in daily trading proves to be the supply of fundamental data. Japan is about 8 hours ahead of European time. When Japanese economic data and events in politics are published, most EU traders are still in bed. By the time market participants enter the trade, the market has already processed the Japanese data and inserted it into the price of the yen pairs.
The representation makes the British pound the base currency and assigns the US dollar the function of a quote currency. Currently, behind the two codes is the number 1.37. Accordingly, you can currently buy 1.19 American dollars for one British pound. From our point of view, the currency pair has been one of the big favorites in international currency trading since the British left the Eurozone. The UK is using its newly acquired freedom to establish economic ties at will and is putting its economy on a solid foundation.
If you are focusing on this pair, you should be aware of the value of various commodities, since Australia exports a lot of coal, iron ore, copper, etc. Therefore, the country’s currency is considered to be dependent on the price of these commodities. Also important for the valuation of the AUD are the economic relations between Australia and China, the main buyer of the mentioned commodities.
If the Chinese economy is booming, the Australian economy will also benefit and vice versa. For European traders, trading AUD/USD is complicated by the early release of economic data in Australia.
In this pair, the Canadian dollar takes the function of a quote currency, while the US dollar acts as a base currency. Currently, 1 USD buys 1.35 Canadian dollars.
The Canadian dollar is a classic commodity currency with a primary link to the oil price. Its exchange rate falls against the USD when OPEC increases its production levels, causing oversupply. At the same time, the USD benefits from an old rule – oil can only be sold against US dollars worldwide.
The exchange rate of these currencies is important to the global economy because the U.S. and China are two of the world’s largest economies. Although the USD/CNY pair is now ranked 5th among the most traded currency pairs, it played a rather minor role in global foreign exchange trading for a long time. The reason is that the Chinese leadership has tied the exchange rate to international currencies and set relatively narrow frames in which the currency can fluctuate freely.
In this currency pair, the US dollar takes the function of a base currency, while the Swiss franc serves as the quote currency. Currently, 1 American dollar can buy around 0.93 Swiss francs.
You may wonder why the currency of Little Switzerland is a major at all. Various Internet sites explain this fact very differently. It seems understandable to us that Switzerland is defined as a discreet and safe financial center, which keeps and increases the fortunes of particularly rich people from all over the world.
As mentioned at the beginning of this article, major currency pairs have smaller spreads than exotic ones, which attracts traders. In this regard, the trading volume of the major pairs is maintained at a high level. Why is it important?
With high volumes, it is easier for a trader to enter and exit the market, and the probability of slippage is much lower, which is great for new traders. Also, the main characteristics of the mentioned currency pairs are high stability and liquidity. Rates of major currency pairs are easy to forecast which is very important for beginners with little experience.
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