Forex is a financial market where currencies are bought and sold to make a profit. Trading in the Forex market is done in pairs, each consisting of two currencies. Beginners often struggle to know which pairs are best to trade, which can result in losses.
To help beginner traders, FBS analysts reviewed the most traded Forex pairs according to three criteria:
- Liquidity measures market activity through the number of traders and trading volume. The Forex market operates 24 hours, 5 days a week, covering $6 trillion turnover each day. Since financial centers around the world open and close throughout the day, liquidity fluctuates but remains relatively high all the time.
- Volatility shows the tendency of an asset’s price to change rapidly, frequently, and significantly. The lower the volatility is, the weaker prices change over time, which is better for a beginner. And vice versa.
- Spread is the difference between the price at which a trader can buy or sell an underlying asset. Smaller spreads mean better conditions for traders.
Such an approach allowed us to identify the five best pairs to trade Forex.
Top 5 Forex pairs to trade for beginners
EURUSD: EURUSD is one of the most traded currency pairs in the Forex market.
Liquidity: The EURUSD pair is highly liquid. Its approximate daily trading volume accounts for 28%.
Volatility: The pair is relatively stable, which can help traders avoid unpredictable price movements. EURUSD volatility is influenced by inflation, the unemployment rate, and meetings and releases of the European Central Bank and the Federal Reserve. These economic events are easy to track using the Economic Calendar.
Spread: The spread for the EURUSD pair is typically low, especially during periods of increased liquidity. This means that traders can enter and exit trades with minimal transaction costs.
An interesting fact:
The euro is the youngest currency in our article. It appeared on January 1, 1999, and was initially known as an “invisible” currency, used only for accounting purposes and electronic payments. Coins and banknotes were introduced on January 1, 2002.
GBPUSD
GBPUSD is another best currency to trade for beginners.
Liquidity: Similar to the previous pair, GBPUSD is highly liquid and ranks among the top five most traded Forex pairs. The approximate daily trading volume of GBPUSD amounts to 11%.
Volatility: Due to its high liquidity, GBPUSD is considered a low-volatility pair, making it less risky for trading than more volatile currency pairs. However, it is important to stay informed of inflation, gross domestic product, the Bank of England meetings, and other economic releases that could potentially impact the pair’s price.
Spread: The pair’s high liquidity also ensures a tight spread, resulting in minimal transaction expenses for traders.
USDJPY
USDJPY, also known as the “Gopher,” is another most traded Forex pair particularly suitable for beginners.
Liquidity: This pair boasts high liquidity, evidenced by its daily trading volume, which reaches about 4%.
Volatility: As with the previous pair, the USDJPY’s volatility depends on GDP growth, the Bank of Japan Monetary Policy Statement, trade balance, and employment data. Monitoring news from the USA and Japan is vital in building an effective and profitable strategy for this pair.
Spread: Another advantage of USDJPY is its tight spreads.
USDCHF
In our list, USDCHF is also the best currency to trade for beginners.
Liquidity: The high liquidity of USDCHF allows traders to execute trades without experiencing significant slippage. Roughly 5% of the daily trading volume is attributed to USDCHF.
Volatility: USDCHF tends to exhibit relatively high volatility, particularly during the European and US trading sessions. Despite this, both currencies have safe-haven status, making this pair the least volatile during times of market instability.
For novice traders, it can be a useful tool to trade in times of uncertainty. However, it is essential to consider news related to the employment data, gross domestic product, etc., of both the USA and Switzerland.
Spread: The tight spreads offered on USDCHF result from the pair’s high liquidity.
An interesting fact:
USDCHF has an inverse correlation (negative correlation) to other currency pairs such as EURUSD and GBPUSD. This means that when these pairs decline, USDCHF tends to rise. As a result, traders can use these correlations to diversify their portfolios.
USDCAD
USDCAD is also considered one of the Forex best pairs to trade. With the right trading approach, beginners might benefit from this pair.
Liquidity: The high liquidity of USDCAD significantly affects trading. The pair’s daily trading volume accounts for approximately 5%.
Volatility: The pair’s volatility is notable, especially during trading sessions in the USA and Canada. Traders should closely monitor economic news from both countries, including employment data, gross domestic product reports, etc., to gauge potential impacts on the exchange rate. Moreover, since Canada is one of the world’s largest exporters, CAD positively correlates with the price of oil. Accordingly, USDCAD has a negative correlation with the price of oil.
Spread: The high trading volume of this pair results in relatively low spreads.
Final thoughts
Overall, the combination of high liquidity, relatively low volatility, and tight spreads make the listed pairs beneficial for beginner traders.
All five described currency pairs are widely available on most Forex trading platforms. This makes it easy for traders to access and trade the pair from anywhere in the world.
Due to the pairs’ popularity, there is a wealth of information on them, including news, analysis, and trading strategies. These factors help traders make informed decisions and stay up-to-date on market developments.
In conclusion, it is vital to keep in mind that trading any currency pair involves risk, and traders of any level should always have a solid trading plan and use proper risk management techniques to protect their capital and minimize potential losses.
FAQs
How to choose a currency pair to trade?
To choose a currency pair for trading, a trader should consider several criteria – liquidity, volatility, and spread. High liquidity ensures tight spreads, while lower volatility means lower risks for a pair.
What most affects the movement of currency pairs?
Currency pairs are highly volatile during the release of important economic data such as unemployment rate, inflation, GDP, and central bank meetings. Track these events in the Economic Calendar.
What is the highest currency in the world?
The Kuwaiti dinar is the official currency of Kuwait and the most valuable currency in the world, with 1 KWD equaling 3.26 USD as of March 1, 2023. Read the article Strongest Currency in the World — Top Highest Currencies to know more about the world’s strong currencies.
