Best Currency Pair To Trade For Beginners
The biggest question ever asked by Forex traders
The Forex market is simply a two-dimensional market because you can either buy or sell one currency against another currency ( that is why currencies are listed in pairs in the Forex market ). Our job as Forex traders is very simple but technical and it is predicting which currency will outperform the other in a currency pair. Let’s think about every country in the world and their different currencies being listed in the Forex market, we can see that there is an ample opportunity in the Forex market waiting to be grabbed.
Should we Grab all the opportunities we find in the Market or grab some?
There is a saying “Jack of all trade master of none” and this applies to trading the Forex market as well, I would recommend that when starting in the Forex market you should trade very few currency pairs, that way you will be a “MASTER” easily, rather than picking up the whole bunch of currency pairs. because if you cannot be profitable with just a few currency pairs odds are you won’t be able to make money trading a ton of currency pairs as well.
In my quest to discover the “holy grail” in the world of currency pairs. I have picked out the most common or will I say the most traded currencies in the Forex market, which are: USD, EUR, GBP, JPY, CHF, AUD, NZD, and CAD. These currencies when cross-matched can make up to 28 currency pairs. According to The Bank of international settlement, the USD accounts for about 88% of foreign exchange transactions while the EUR accounts for about 31% of foreign exchange transactions. This data shows that EUR/USD is the most traded currency pair.
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When deciding what currency pair to trade as a beginner certain critical factors are to be considered and they are :
Opportunity
when picking a currency pair to trade considering the amount of opportunity that is associated with the currency pair is a very significant factor to consider. The EUR/USD has been the currency pair with the highest volume of foreign exchange transactions and will present more trading opportunities because most retail traders, Hedge funds, and Big banks actively trade this currency pair, therefore the liquidity is very high. Based on this factor beginners should consider picking EUR/USD as one of the few currency pairs to trade.
Costs
There are costs involved with trading in the forex market as with every other kind of market. and the most obvious cost in Currency trading is what the Broker charges traders ( i.e. commission ) and there is a hidden cost which is the spread ( difference between Bid and Ask price ). currencies with tight spreads are better than currencies with wide spreads. because the spread is very important and also depending on the number of trades you take per day you should consider the cost of trading as an important factor. The EUR/USD is the tightest spread as I have seen brokers list the pair with zero spread. while an example of a currency pair that might have a high hidden cost is NZD/CHF and this should be avoided by Amateur traders and Scalpers
Risk
There are different levels of risks associated with currency trading and these risks all depend on the currency pairs we trade and the number of times we enter the trade. For Example; when you trade a currency pair with a widespread you stand a risk of having your stop loss be hit faster before the actual market price gets to your stop loss and this is due to widespread association with the currency pair. The main cause of wide spreads is Low liquidity of the currency pair therefore if you do not want to risk too much always consider the liquidity of the currency at the time of entering the trade. Another angle of the risk involved with trading currency pairs with wide spreads is that wide spreads eat up your profit i.e. you get out of the market with little than expected profits.
And the main drivers of every currency are; Interest rates, Economies of the countries, and other economic data.
CONCLUSION
Actively traded currency pairs present more trading opportunities that is why I will always pick EUR/USD as one of the best currency pairs to trade. Some of the other currencies that are very good to trade are known as commodity currencies ( AUD, NZD, and CAD ). Crossing these currencies with either EUR or USD will also provide a very profitable currency pair besides the EUR/USD, so if you intend to trade more than 1(one) currency pair in the Forex market, consider crossing these commodity currencies with EUR or USD.
