The best forex pairs to trade for beginners are ones that are easy to understand. As one may know, there are many currency pairs to trade.
But each of the currency pair exhibits different characteristics. Furthermore, it does not make sense to club a EUR USD or a USD JPY into the same category.
As long as the base or the quote currency remains the same, the currency pair exhibits similar characteristics.
The general opinion in the forex currency markets is to pick currency pairs such as the forex majors like the EUR USD, GBP USD and so on. The common reason for picking these currency pairs to trade is because of the liquidity they provide.
But is liquidity the only reason?
When there are over 100 currency pairs to trade, you will find some interesting and exotic forex currency pairs that are the best for trading.
If you are a a beginner to forex trading, then this article will point you to the best forex pairs to trade. We do not stick to the conventional rules of trading just the major forex currency pairs.
Forex trading is the world’s largest industry with over $5 trillion being traded every day. In just a few years, this number has dropped by a few billion. But the currency markets still remains lucrative when it comes to retail forex trading.
Technology and competition has helped to make forex trading easier. Whether you have $100 or $1000, anyone can now open a forex trading account to buy and sell currencies.
What are currency pairs in forex trading?
In the foreign exchange market, trading is done on currency pairs. This involves simultaneous buying and selling of one currency to another.
Therefore, when you trade the EUR USD, you can either buy the EUR and sell the USD, or sell the USD and buy the EUR.
Traders buy and sell currency pair when they think that one currency will outperform the other. The concept of forex pairs trading is merely to assess the strength of one currency to the other.
Therefore, when we talk about the best forex pairs to trade, we refer to the base currency and the quote currency.
Depending on the currency pair you choose, they may have different characteristics as below:
Spreads in the forex markets can differ
The spread is the difference between the bid and the ask price. This means that when you buy a currency pair such as the USD CHF, the spread will be different when you buy a currency pair such as the USD ZAR.
The spread is determined by how popular the currency pair is. Generally speaking, the majors such as the Japanese yen, Canadian dollar, British pound are the most popular traded currencies. Due to this popularity, these traded currencies have lower spreads.
But when you look to exotic currencies such as the South African rand or the Turkish lira, they are not so popular. Hence, the spreads on these currencies are much higher.
Trends in the currency markets are not the same
Not all currencies trade as a free float. Some currencies are pegged against the USD, while some are allowed to move within a percentage range. Other currencies are mostly free floating currencies.
For example, the USD CAD is a free floating exchange rate. Whereas the EURDKK is a pegged currency pair. Here, the DKK is pegged to the EURO. Therefore, you can’t see any clear trends if you want to trade the EURDKK currency pair.
On the other hand, even with free floating exchange rates like the pound sterling, the currency markets can differ in their trends. Most of the major forex pair that you can trade are stable. Hence, unless you are a very long term investor, you cannot really capitalize on the trends.
Fundamental analysis is different for different currency pairs in the world
Depending on the traded currency pair, the fundamental analysis can differ. For example, if you were trading the EUR, then you would pay attention to the European Central bank. The European Central bank is responsible for setting the interest rates and monetary policy for the 27-country economic bloc.
On the other hand, currencies that come from emerging markets tend to follow not just monetary policies. Besides the economic data, such forex currency pairs are also vulnerable to political changes in the region. Here’s a good example of the Turkish lira which jumped as the central bank gained independence from government oversight.
What are the best currency pairs to trade for beginners?
Now that we have an understanding of how currency pairs are different, let’s take a look at the top five traded currency pairs that are ideal for beginners.
For most of the forex pairs we cover in this list, they do not include the US dollar as the base currency or the quote currency.
This is because there are a lot of currency pairs with the USD. Besides this, there is also wide coverage for the USD based exchange rate in the forex market. Forex traders can simply look at the actions from the US Federal Reserve to ascertain the strength of the dollar.
And with almost every currency trading against the dollar, the trends are also similar. Hence it does not make sense to cover the dollar as far as the forex market is concerned.
We will also highlight the factors that make these forex pairs ideal for beginners to trade.
The EURAUD is the forex currency pair where you trade the Euro for the Australian dollar. This is a cross currency pair because there is no US dollar involved.
The EURAUD tracks the exchange rate between the EUR and the AUD.
The unique fact about the AUD is that it is a commodity currency in the forex market. Hence, the AUD is more in favor when there is a rising risk sentiment in the market. Also, the Australian dollar tracks the global prices of commodities.
This makes the EURAUD one of the forex pairs best suited for beginners. The trends are pronounced and they do not change very quickly. Therefore, you can buy and hold or sell and hold the EURAUD as long as you are trading within the trend.
The EURMXN is not that widely traded currency in the forex markets. When one thinks of the MXN or the Mexican peso, one is reminded of the US dollar. Also, one may think of the US dollar in relation to the Mexican peso, and how it strengthened during Trump’s election campaign.
But interestingly the EURMXN shows some unique characteristics. As evident from the price chart below, the EURMXN in the forex market maintains a strong trend.
There are bouts of pullback to this uptrend at frequent intervals. This makes trading the EURMXN a pleasure.
The only downside with the EURMXN is because it not that widely traded currency the spreads are a bit higher. At the same time, when you are long on EURMXN, your position will also attract negative overnight swap rates.
But all of this should not matter if you are trading this forex market in the long term.
The USDTRY is a relatively popular traded currency pairs among exotic currencies. This currency pair tracks the US dollar to the Turkish Lira. Both are free floating currencies.
The most noticeable fact about the USDTRY forex market is the fact that the uptrend is quite strong in this market. There are both political and economic factors at play when trading the USDTRY.
For one, the central bank interest rates play a key role. The Turkish lira enjoys higher interest rates than the US dollar. But this does not impact the uptrend that we have in the USDTRY forex market.
Even when the US federal reserve hikes interest rates, it is still lower compared to Turkey’s interest rates.
Politics are also key for this currency pair and sometimes the USDTRY can get very volatile.
PLNJPY is one of those currency pairs that you don’t really think about much. It is as exotic as it can be. While the PLN is more commonly traded against the US dollar in the forex market, it is not that popular for trading against the JPY.
Yet, the PLNJPY is one of those pairs in forex that can offer a lot in terms of trading opportunities.
The chart below shows that prices are currently consolidating. However, it is likely that soon we will see the PLNJPY breakout from its range. This can provide some good trading opportunities especially in the long term.
Since not much is talked about the Polish Zloty, traders should pay attention to the economic news from Poland. As with other forex pair, the PLNJPY is not one of the major currency pairs. Therefore, forex traders can expect higher spreads on this pair.
Can you safely trade any of these best currency pairs?
Having outlined some of the best currency pairs to trade, the question that comes to mind is whether you can safe trade these currencies.
Firstly, trading forex come with a high risk of losing money. Therefore you cannot afford to trade forex if you do not have capital that you can afford to lose.
Forex traders should know that no matter what currency pair they trade with, the market is risky. On top of this, using leverage and margin can also increase the odds of this risk.
The above five currency pairs are unique because firstly they do not have the US dollar in the base or quote currency. This makes these cross currencies more interesting because some of them are also very exotic.
As we mentioned earlier, the spreads are higher than usual when trading with a US dollar based trading pair. Also, the overnight swaps can be much higher than usual.
Hence, while these are the best forex pairs that traders can trade, they are just as risky when you would trade the Japanese yen or the Swiss franc or the British pound.
What makes the each of the currency pair the best to trade?
These unique currency pairs are the best to trade because of the clear trends they exhibit.
Also, they are unique because they are not talked about that frequently. The price movements in trading cfds such as these forex pairs allows for an easy way to analyze the forex markets.
Beginners in forex trading cannot afford to take undue risks. Quite often trading requires a lot of analysis of the markets. But the five best forex pairs already come with strong technicals.
The trends are clearly established and trading does not have to get too complicated. Therefore, trading cfds such as these currency pairs is easier as far as technical analysis is concerned.
Are there any risks of trading these currency pairs?
There are risks in just about any financial asset that you want to trade or invest. Therefore, when traders ask the question whether these unique currency pairs are risky or not, it is a naïve question.
At the end, traders should realize that forex trading come with a high risk. Therefore, traders cannot expect to make money by blindly buying and selling these currency pairs. Also because these forex pairs do not have high liquidity, there are higher costs as well.
If traders become impatient, you will be losing your money quite quickly.