There are hundreds of currencies in the world today, with most of them present on the global foreign exchange market. All currencies are traded in pairs, allowing traders to buy and sell simultaneously. Although there’s a wide range of currencies to choose from when trading, most traders carefully select a few to trade. As a trader, one of the crucial decisions you’ll make is deciding the best or easiest forex pair to trade. How can you do that? There are certain factors to consider. In this article, you’ll learn what makes forex pairs tradable and the easiest pair to trade.
What is a Forex Pair?
A forex pair is two currencies that are listed together and traded simultaneously. All currencies are traded in pairs via a broker. Forex pairs allow the trading of different currencies with a single currency. For example, brokers offer forex pairs of currencies such as GBP, EUR, and AUD against the USD. Traders can buy or sell those currencies when paired with the USD. In a forex pair such as the GBP/USD, the first currency is called the base, while the second is called the quote. A buy entry orders the broker to buy the base and sell the quote, while a sell entry orders the broker to sell the base and buy the quote. Due to several reasons, there are different categories of forex pairs.
Categories of Forex Pairs
Forex pairs are categorized according to the popularity of the currencies in the pair. Based on that, there are three categories of forex pairs:
Major forex pairs are those with the most popular currencies. The majors, as they are called, are the most traded pairs in the market and have the most liquidity. They are typically pairs of the most significant currencies in the world, paired with the USD. There are eight major pairs: EUR/USD, GBP/USD, USD/CHF, USD/JPY, AUD/USD, NZD/USD, and USD/CAD.
The minor pairs are also popular but have less liquidity than the majors. Minor pairs are sometimes called crosses. They typically have bigger spreads and volatility than major pairs and are sometimes used to refer to all non-USD pairs. Examples of minor pairs are EUR/GBP, EUR/AUD, GBP/JPY, CHF/JPY, NZD/JPY, and GBP/CAD.
Sometimes, a major currency is paired with a currency of a developing nation. Such pairs are called exotic pairs. Exotic pairs have popular and unpopular forex currencies together. Examples are EUR/TRY, GBP/ZAR, JPY/NOK, NZD/SGD, USD/HKD, and AUD/MXN.
As a forex trader, you can have any of these pairs in your portfolio. However, there are several factors to consider when choosing the right pairs for trading.
Conditions For Easy Trading
What makes a currency pair easy to trade? These three key factors are important when choosing your favorite pairs:
Liquidity refers to the quality of a currency pair that allows it to undergo insignificant price changes when it is traded. If some currency pairs are overbought or oversold, the price changes immediately, causing sharp volatility. This makes such pairs unsuitable for traders with small trading capital. Before choosing a pair, confirm that it has significant liquidity and can withstand large trading volumes without substantial price changes. The major forex pairs have the advantage over minor and exotic pairs regarding volatility. The liquidity of a forex pair may also depend on the active trading session.
The spread is the market difference between the bid and ask prices. A small spread is better for trading as it allows traders to retain healthy profit margins. Yet again, the major forex pairs have historically lower volatility than minor or exotic pairs, allowing brokers to offer lower spreads. When choosing your forex pairs, it is best to go for those with lower or tighter spreads (as traders say).
Volatility is an essential factor for profitability; the greater the volatility, the greater potential for profits. Volatility allows the market to have clear trends that make technical analysis easy. But volatility is a double-edged sword. While it creates the potential for profits, high volatility levels may upset the market. Again, the major pairs are typically better when it comes to volatility. The volatility of major currencies is more controlled than the minor and exotic pairs, and that’s one more reason why traders consider them easier to trade. Volatility is impacted by the political and economic situation.
What are the Best Currency Pairs to Trade?
Based on the factors impacting forex pairs, the best currency pairs are those with the highest liquidity, moderate volatility, and lower spreads. Based on these, there are 18 currency pairs with the biggest share of the daily forex trading volume. These are USD/CAD, EUR/JPY, EUR/USD, EUR/CHF, USD/CHF, EUR/GBP, GBP/USD, AUD/CAD, NZD/USD, GBP/CHF, AUD/USD, GBP/JPY, USD/JPY, CHF/JPY, EUR/CAD, AUD/JPY, EUR/AUD, and AUD/NZD.
What is the Easiest Currency Pair to Trade?
Choosing the easiest currency pair to trade is subject to personal choices. Based on technical analysis, liquidity, and volatility, the EUR/USD and GBP/USD pairs are easily the easiest to trade. These pairs are beginner-friendly, meaning that a new trader can successfully analyze the markets and make profitable trades.
How to Trade Forex Pairs
Here’s how to trade the EUR/USD and GBP/USD pairs:
- Get a good broker that offers low spreads.
- Practice your trading strategies.
- Fund your account and start trading.