Choosing Currency Pairs in Forex Trading

Choosing Currency Pairs in Forex Trading

The forex market is the most liquid one among other markets where banks, brokers, corporations, traders, investment and hedge funds actively participate in the exchanging operations and set the pace. You’re here to get to know how to make this "currency choice" and meet your trading forex objectives.

What is a Currency Pair?

A currency pair represents the quotation of two different currencies where the value of one currency is quoted against the value of another currency. A currency that goes first in the pair is defined as a base currency, whereas a currency that takes the second position in the pair is specified as a quoted currency (e.g., EUR (base currency)/USD (quoted currency)).

For example, there is a EUR/USD currency pair with the bid (buy) price of 1.3500. That means that 1 euro can be exchanged for 1.3500 US dollars.

Determination of Prices in the Forex Market

Supply and demand is what determines the prices of the pairs. There are central banks that get involved in the price movements sometimes, but it usually happens when there is a risk that the price will dramatically increase or decrease, which, in its turn, can result in economic turbulence.

Supply and demand is what determines the prices of the pairs.

Supply and demand is determined by the fundamental conditions in each country, its economy, interest rates, future directions of the country/currency, and the financial needs of all market participants.

Read more: How to Read Currency Pairs

The Characteristics of Major Currency Pairs

Major currencies (majors) are the ones that are traded with the highest volume. Each currency pair includes the US dollar, which is also known as the world’s currency. So, here are the most active forex pairs we’re talking about: EUR/USD (the euro/the US dollar), GBP/USD (the British pound/the US dollar), USD/JPY (the US dollar/the Japanese yen), USD/CHF (the Swiss franc/the US dollar), USD/CAD (the Canadian dollar/the US dollar), AUD/USD (the Australian dollar/the US dollar).

Major currencies (majors) are the ones that are traded with the highest volume.

High trading volume attracts even more volume (traders are highly interested in buying and selling these currencies) – this is what happens with the above-mentioned majors. Another important point is that major pairs have smaller spreads (broker’s commission for the provided services). As you can see, it’s a never-ending circle.

In case you’re still puzzled to understand what high trading volume means and what advantages it has, let us explain: High volume signifies that traders can easily enter and exit trades no matter what position size they choose, or, in other words, buying and selling a certain instrument becomes easy.

Read more: How to Buy and Sell Forex for Beginners

Minors and Exotics

Those currency pairs that don’t include the US dollar are called minor currencies or cross-currency pairs. When it comes to trading, these currencies have higher spreads, and they aren’t as liquid as majors. Despite the fact that minors include the major currencies, they still have lower trading volume and, we hope, you understand why. Here are some of them: EUR/GBP (the euro/the British pound), EUR/AUD (the euro/the Australian dollar), GBP/JPY (the British pound/the Japanese yen), CHF/JPY (the Swiss franc/the Japanese yen) and others.

Those currency pairs that don’t include the US dollar are called minor currencies or cross-currency pairs.

Exotic pairs include majors and the currencies of developing countries (such as India or Brazil). Traders who prefer trading exotic currency pairs should be ready for higher spreads and low liquidity. Exotic currency pairs include GBP/ZAR (the British pound/the South African rand), EUR/TRY (the euro/the Turkish lira), USD/HKD (the US dollar/the Hong Kong dollar), AUD/MXN (the Australian dollar/the Mexican peso) and others.

Choosing the Best Currency Pairs to Trade

Yes, it’s possible to get profit trading different pairs as long as you stick to your trading strategy and analyze the market direction.

Conclusions

There aren’t right or wrong choices when it comes to trading. It’s your experience. The important thing is that you should always analyze your suggestions and make rational decisions. What are the best currency pairs to trade for beginners? Being a novice trader, don’t even try to trade a few currency pairs simultaneously. Start with one major pair, learn its hidden pitfalls and understand its movements in the market.

About JustMarkets

JustMarkets is the world’s trusted broker that offers 180 popular trading instruments. By having a trading account on JustMarkets, you benefit from advantageous conditions, including high leverage, low spreads (from 0.0 pips), as well as commission-free deposits and withdrawals. And if you have any questions, there is a helpful support team working round the clock to ensure you have the most convenient trading experience.

Try your hand at currency trading by opening a demo account on JustMarkets. It’s a quick and risk-free way to master trading in the most liquid financial market. A practice account will help you learn trading basics and develop a strategy before investing money. Start trading today to take care of your future tomorrow.

by JustMarkets, 2021.07.21

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