If you are just starting out on your journey as a forex trader, you may be interested in knowing which currency pairs will be the easiest for you to trade. You are right to ask yourself that question because history has shown that some currency pairs tend to be more popular among traders when compared to other currency pairs. In this post, we will look at not just the easiest currency pairs to trade but also the underlying reasons why traders pick a given currency pair over another.
What are the categories of forex pairs?
Major currency pairs. These are pairs which have currencies of the largest economies in the world, such as the US dollar, the British Pound, the Euro and the Japanese Yen. Forex trading leans heavily towards these pairs since the economies behind those pairs are not only strong but stable as well. The major currency pairs include;
- EUR/USD (Euro and the US dollar)
- USD/JPY (US dollar and the Japanese Yen)
- GBP/USD (British pound and the US dollar)
- USD/CHF (US dollar and the Swiss Franc)
- USD/CAD (US dollar and the Canadian dollar)
- NZD/USD (New Zealand Dollar and the US dollar)
Cross currency or minor pairs. The minor currency pairs also contain the major currencies of the biggest economies. However, this category of pairs doesn’t have the US dollar in it. The examples of currency pairs in this category include;
- CHF/JPY (Swiss Franc/Japanese Yen)
- EUR/GBP (Euro/British pound)
- GBP/CAD (British pound/Canadian dollar)
- EUR/CAD (Euro/Canadian dollar)
- AUD/JPY (Australian dollar/Japanese Yen)
- GBP/AUD (British pound/Australian dollar)
Exotic currency pairs. These are forex pairs which contain the US dollar and the currency of a country whose economy is described as still developing. They aren’t good for beginners because they are complex to analyze. The examples of this type of currency pair include;
- USD/HKD (US dollar/Hong Kong dollar)
- USD/SGD (US dollar/Singapore dollar)
- USD/ZAR (US dollar/South African Rand)
- USD/SEK (US dollar/Swedish Krona)
What factors can help you choose the easiest currency pairs to trade?
Tight spreads. The difference between the bid price and the ask price in a currency pair is called its spread. This difference is important because it is the cost you incur to engage in forex trading. You want a currency pair that has a low spread so that your trading costs are minimal.
High liquidity. You also want to select a currency pair to trade if it has high liquidity and high volumes. High liquidity means that there will be plenty of activity in as far as trading is concerned, and more action means greater opportunities for you to make a profit!
Economic stability. It is important for you to select a currency pair that is backed by a stable economy. A stable economy makes for a stable currency, and there will hardly be sudden events which cause a major change in the status of the currency within a short time.
A tendency to trend. Many traders also prefer currency pairs which usually trend either up or down as they are traded. Trends are good because they often point forex traders in the right direction as they enter the market. Currency pairs that hardly trend are challenging to trade because the market changes direction frequently.
So, which currency pairs are the easiest to trade?
While the word “easy” may not be exactly right when it comes to forex trading, it can be loosely used to describe the currency pairs which meet the requirements for the best currency pairs to trade. They include the following;
This is the most traded currency pair around the world. It contains two of the strongest currencies from very stable economies. Top funds, banks, retail and institutional traders treat this pair as their preferred trading pair. It has the highest liquidity of all pairs, and its relative volatility means that opportunities to trade abound. The nickname for this pair is “the fiber.”
This currency pair is great for beginners because it is highly liquid and tends to exhibit strong trends that last a long time. In terms of volatility, the USD/JPY is more volatile than the EUR/USD. This high volatility means that traders have to be cautious as this pair carries a high risk. The pair’s nickname is “the gopher.”
Nicknamed “the cable,” the GBP/USD pair is great for newbies in forex trading. This is because of its robust price movement in trends that are opportunities for traders to make a profit. Traders can also benefit from the detailed analysis available on this pair.
This is one of the major currency pairs and it is usually more predictable when compared to other currency pairs on the majors list. However, it is important to note that this pair often moves in an opposite direction to the price movement of EUR/USD as well as GBP/USD currency pairs. This is called negative correlation.
This pair was nicknamed “the loonie” as a result of the image of a duck appearing on one of the coins issued in Canada. It is another of the great pairs to trade for beginners and experienced traders alike. An important factor to note is the influence oil has on the value of the Canadian dollar. If oil is riding high in Canada, the CAD will appreciate in value, and the reverse is true when Canadian oil trends downwards.
In the discussion above, we have gone to great lengths to break down the process through which you can select the easiest currency pairs to trade, and availed examples of some pairs FX traders prefer to trade. You would be well advised to start with one or two of those pairs and track them carefully before you expand your selection of pairs to trade.
High-Risk Investment Warning: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial adviser if you have any doubts.