CURRENCY PAIR FOR BEGINNERS
Choosing the right currency pair is a matter of crucial importance because it is the main trading instrument on Forex. There are no common rules and precise instructions. Indeed, sooner or later every trader picks those currency pairs which suit his/her needs the best. Nevertheless, it would be a good idea to consider several recommendations which would be of great help at the dawn of one’s trading.
There are three types of currency pairs:
*major currency pairs as a rule contain the US dollar;
*minor currency pair or crosses, on the contrary, are not related to the US dollar;
*exotic currency pairs include currencies of emerging markets.
The first rule reads that it does not make sense to set about trading a large number of pairs. Over 120 currency pairs are available on Forex. So, rookie traders often skip from one currency pair to another. However, they will hardly benefit from it. On the other hand, it would not be wise to trade just one currency pair. With the vast choice of currency pairs, it would be better to pick two and at the most three currency pairs. It will simplify the task of getting to know the currency market. Beginners learn to analyze price dynamics and features of preferred currency pairs.
The second rule is to start with popular currency pairs. Trading exotic currency pairs should be postponed until you gain experience. Rare currency pairs are not the best choice for beginners. A small trade volume, low liquidity, and wider spreads make such speculations rather risky. Moreover, rookie trader will find it difficult to analyze their behavior. Thus, beginners are recommended to focus on popular trading instruments. Another good idea is to choose currency pairs which are related to each other. For instance, EUR/GBP and EUR/CHF.
Now let’s gain more insights about some widely traded currency pairs, hence the most popular ones.
For long years, the EUR/USD pair is recognized as the most heavily traded currency pair in terms of a trade volume. The pair is marked by high liquidity, low spreads, a stable dynamic, and relative predictability. The currency pair is highly sensitive to economic and political news. On the other hand, apparent simplicity could entail big losses. Despite great popularity, trading EUR/USD involves equally high risk as trading exotic currency pairs. Therefore, we advise you to speculate the pair with caution. Another popular currency pair is GBP/USD, though it is traded in a choppy manner. Similar features are a big trade volume and dependence on news and economic data from both the US and Great Britain. Unlike its European counterpart, the pound sterling behaves wildly versus the US dollar.
If the article were devoted to the currency pairs which are the least suitable for beginners, the USD/JPY pair would be the most vivid example. An instant response to a minor change in the international political arena terminates even short-term forecasts. The currency pair is a serious trading instrument for professionals, but it is complicated for beginners.
Like the previous pairs, USD/CHF is also widely traded on Forex. However, its dynamic is easier to understand. The thing is that the price movement mirrors precisely fluctuations of the US dollar. Besides, the USD/CHF pair is used as a safe haven asset in a period of political turbulence because of Switzerland’s neutral policy and healthy domestic economy.
In conclusion, the USD/RUB pair is also seen as a major pair, though it is not considered to be exotic in Russia. This pair arouses interest among tyro traders in Russia. On the one hand, the ruble is a national currency for them, thus it seems to be transparent and predictable. On the flip side, the ruble is vulnerable to fundamental factors like news, forecasts, economic data, oil prices, the central bank’s key interest rate etc. Interestingly, experts say the bulk of deals on USD/RUB is of pure speculative character. The verdict is obvious. This currency pair is wrong for beginners.
What is a good solution for a newcomer on Forex if the most of major currency pairs are too complicated? It would be a good idea to start with the most stable currency pairs, not the most popular. Therefore, pay attention to the following pairs.
The EUR/GBP pair suits beginners well because of its slow price move. Another advantage is that a trading result can be predicted with high accuracy in the time of the bear market. It simplifies the work, thus trading the pair is easy and beneficial. The EUR/CHF pair is also marked by minor price fluctuations. So, the pair is a great choice for stable and confident work. Bearing in mind its steady dynamic, liquidity, and low volatility, the pair is a good solution to get started on Forex.
CHF/JPY is another good idea for rookie traders. Its dynamic coincides with forecasts all right, though sometimes forecasts do not come true. To put it in a nutshell, a beginner is recommended to choose 2-3 currency pairs with a predictable dynamic. As a result, a trader gets to know the market and grasps the principles of its operation. Besides, a newcomer can test a trading strategy and sharpen skills of technical analysis. After a trial period, the time is ripe to add more currency pairs to a portfolio, making conclusions from the trading practice. Seasoned traders do not stick stubbornly to particular currency pairs. The essence of Forex is to spot a strong trend that always generates robust trading. Importantly, a trader should understand the ins and outs of the market to feel at ease. Only on this condition, a trader should experiment with unfamiliar currency pairs.
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