Most brokers offer major, minor and exotic pairs, and each currency pair reflects the relationship that two economies have with one another. It is advisable to choose a major currency pair because of high liquidity and low volatility, from the list of the Best Currency pairs for Beginners.
What is a currency pair?
Currencies are always traded in pairs and every pair has a base currency and a quote currency. When an investor buys a currency pair, the base currency is bought and the quote currency is sold simultaneously, and the profit received will be in the quote currency.
When the investor sells a currency pair, the base currency is sold and the quote currency is bought.
Currency pairs are impacted by interest rates, Gross Domestic Products (GDPs), Federal Reserve activity and other economic indicators, such as unemployment rates, industrial production and consumer spending.
The foreign exchange market operates 24 hours a day, 5 days a week.
What types of currency pairs are used in Forex trading?
The three main categories of currency pairs in Forex trading are Majors, Minors and Exotics. Each pair has different types of market volatility, price movement predictability, risk levels, popularity, and liquidity.
Majors are the most liquid and least volatile pairs, while exotics are the most volatile and least predictable currency pairs.
Major Currency Pairs (Majors):
Majors are the most popular and most stable currency pairs in the Foreign Exchange market. They consist of currencies from the most developed countries, with stable economies. These currencies are suitable for beginners because of their low spreads, high liquidity levels and low risks.
Features of Euro/US Dollar
| Features | EUR/USD |
| Liquidity | High |
| Volatility | Low |
| Predictability | High |
| Popularity | One-third of total Forex transactions |
| Spreads | Lowest in the market |
| Beginner’s choice | Yes |
Features of US Dollar/Japan Yen
| Features | USD/JPY |
| Liquidity | High |
| Volatility | High |
| Predictability | Low |
| Popularity | 17% of Forex transactions |
| Spreads | Low |
| Beginner’s choice | No |
Features of British Pound/US Dollar (Commodity currency pair – Gold)
| Features | GBP/USD |
| Liquidity | Low, in comparison to others |
| Volatility | High |
| Predictability | Low, dependant on gold prices |
| Popularity | 12% of total Forex transactions |
| Spreads | Low |
| Beginner’s choice | No, aggressive short-term strategies |
Features of Australian Dollar/US Dollar (Commodity currency pair – Gold)
| Features | AUD/USD |
| Liquidity | Low, in comparison to others |
| Volatility | High |
| Predictability | Low, dependant on gold prices |
| Popularity | 7% of total Forex transactions |
| Spreads | Low |
| Beginner’s choice | No |
Minor Currency Pairs (Minors):
Minors exclude the US Dollar, but they include one of three other major currencies, namely the Euro, the Japanese Yen or the British Pound. The spreads of minor currency pairs are usually bigger with lower liquidity, but is combined with a major currency makes them less volatile.
Examples of Minor currency pairs include AUD/CAD, AUD/CHF, AUD/JPY, AUD/NZD, CAD/JPY, CHF/JPY, EUR/AUD, EUR/CAD, EUR/CHF, EUR/GBP, EUR/JPY, EUR/NZD, GBP/AUD, GBP/CHF, GBP/JPY and NZD/JPY.
Features of Minor Currency Pairs:
| Features | Cross-currency pairs |
| Liquidity | Low |
| Volatility | High |
| Spreads | High |
| EUR | Adds stability and liquidity to pair |
| USD | Not included on either side of the pair |
| Beginner’s choice | No |
Exotic Currency Pairs (Exotics):
Exotics are unstable and extremely unpredictable because the currencies are from emerging countries with developing economies. The spreads are wide and liquidity is low, but the volatility of markets and sudden price movements offer unique and exciting opportunities to make a profit. Common strategies used are Trend, Breakout or Range trading.
Examples of Exotic currency pairs include EUR/TRY, AUD/MXN and GBP/ZAR
Features of Exotic Currency Pairs:
| Features | Exotic currency pairs |
| Liquidity | Low |
| Volatility | High |
| Spreads | High |
| EUR | Adds stability and liquidity to pair |
| USD | Adds stability and liquidity to pair |
| Beginner’s choice | No |
How do I choose the right currency pair as a beginner?
New traders should consider choosing currency pairs from stable economies because of higher liquidity, less volatility and limited risks. When choosing a currency pair, you should research the currencies and their economies, and study their respective charts. More than 70% of all Forex transactions are traded with major currency pairs.
The 8 major currencies with the best trading potential are:
- USD (US Dollar)
- CAD (Canadian Dollar)
- EUR (Euro)
- GBP (British Pound)
- CHF (Swiss Franc)
- NZD (New Zealand Dollar)
- AUD (Australian Dollar)
- JPY (Japanese Yen)
There are 18 core currency pairs in Forex, but there are a total of 27 pairs to choose from. Choosing a currency pair that works for you, will depend on its trading sessions or trading hours, market trends, and the nature of its economy.
Which currency pair is the easiest to trade with?
The EUR/USD is the most stable currency pair to trade with because it is extremely liquid, mostly predictable and has low volatility with tight spreads. It is also the easiest pair to trade and the most popular.
There are also 2 other popular currency pairs that may be easy for beginners to trade with:
- USD/GBP: a riskier option, but popular due to its tight spreads and low pips. This pair is a great alternative for beginners with a bigger appetite for risk.
- USD/JPY: less volatile, with low spreads and predictable trends. This pair is another safe option for beginners who prefer to play safe.
Conclusion
As a new trader, you should try to avoid currency pairs that are unstable because of the increased risks, and you should only trade with currency pairs that you have researched. You should choose one of the Best Currency Pairs for Beginners because they are stable, predictable and highly liquid pairs.
Popular currency pairs for beginners include the AUD/USD, NZD/USD, EUR/USD and GBP/USD.
We hope this guide helps you understand how currency pairs work so that you can start your trading career with confidence!
Disclaimer
Remember, 75% of retail investors lose money when trading CFDs and there is a high risk of losing your capital in the forex markets.
The information on this website is in no way intended to be used as financial advice and opening an account with any broker is done at your own discretion and risk.
