Forex trading has gained a lot of attention in the last couple of years. However, as more people try to find different ways to make money in forex trading, their inexperience in this field is becoming the reason behind losing their capital.
While forex trading has gained a lot of traders, they still need to understand the complexities behind trading in a pair.
Contrary to popular belief, it is not easy to select the best currency pair for your investment. A large number of beginners jump into forex trading without doing homework and invest in a pair that hardly gives them any profit.
If you are a beginner and don’t want to make the same mistakes, choose the currency pair carefully.
What Is A Currency Pair?
A currency pair is the value of one country’s currency compared to another country’s currency. When you trade between a pair, you intend to make a profit out of the difference.
In other words, you try to compare the value of the QUOTE and BASE of the currency. The Quote is the value of the currency at which the trader will sell, and the Base is the value at which another trader is willing to buy.
So far, it has been easy. The difficulty starts when a beginner trades without predicting the fluctuation in the price.
Types Of Currency Pair
Forex trading can be divided into the following categories.
The majors are generally the most popular type of currency pair the world trades. These are currencies from first-world countries and are highly valued. In addition, they will always include US dollars and are generally the most liquid. Because of these features, it allows traders to trade in them freely without worrying about their liquidity.
Majors have the highest liquidity of all the types mentioned below. As these currencies are popular for any investor, they are easy topics of research and investment. Perhaps, this is also the reason why this category is crowded with investors.
Minors do not include US dollars, but it does include other currencies like EURO. The only difference between Major and Minor is that Minor has lower level liquidity, and generally, there is less available data on these currencies to research.
Trading minor currency is, therefore, less competitive. On the other hand, this gives the investors an advantage to invest and make a profit.
Crosses are any currency pair that doesn’t include the US dollar.
Now, you must be wondering if it is similar to the minor. Well, no!
In minor, at least one major currency is involved in the pair. But in crosses, both currencies are minor.
How To Find The Best Currency Pair To Trade?
When it comes to selecting the right pair for your investment, it is important to consider the following factors.
Liquidy is the key factor that decides which currency to trade. As a trader, you would want to trade in a currency that can easily be bought and sold.
The exception to this rule is traders who seek to take advantage of fluctuating performances. This method of making a profit is called Scalping. And involves taking small profits several times throughout the day of trade.
The price stability of any currency is linked to the health of the economy. A country with a better economy will show better stability in their country’s money. So, when you are looking for a currency pair to trade, look for a currency that belongs to a healthy economy.
Predictability comes down to how much information you have about a particular currency. The benefit of trading major currency pairs is that you will have enough information to research and make calculated decisions.
Lesser global currencies are hard to predict because they are new to the forex exchange and have less information to offer.
What Time Of The Day Do You Trade
Forex trade is open 24*7. That means you can trade in forex any time you like. The flexibility that you get in trading play a major role in determining the price.
For instance, trading during the day and night will give you different experiences with the same pair.
In addition, if you are trading in different currencies, you need to be aware of their region and when that region is active. For instance, you might be a night trader in the USA. In that case, Europe and the Middle East may be close. Therefore the only option left is the USA and Asia.
Major Currencies With The Best Trading Potential
All the above-mentioned currencies belong to the top currencies and can form a pair for trading. There are 27 different pairs that you could combine to make the majority of the forex trading.
One thing to keep in mind when you are trading in forex is its trading sessions. With the major markets centered around Asia, Europe, and the United States, the time zone of these countries vary a lot.
Because of the time zone differences, it is important to consider the trading session. For instance, trading during the night will give you a different experience than trading during the day.
That being said, make sure that the location, market opening time, closing hours, and the market suit you.
Which Is The Best Pair To Trade For Beginners?
If we are talking about a single pair that is the safest option to trade for beginners, it will definitely be USD/EUR. This pair is not only the easiest but also a stable currency pair to trade.
USD/EUR is the most traded worldwide because of its high liquidity and light spreads.
But because many investors invest in this pair, the pair is the most volatile in nature and is really hard to predict.
Furthermore, all the major banks and financial institutions use this pair as a major trading instrument, which adds more to its volatility.
Although USD/EUR is the most traded pair, you don’t have to go for it. There are other pairs as well that can give you profit. The only thing you need to do is do thorough research and find optimal entry and exit points.