The best currency pairs on Forex for beginners
What are currency pairs? What are the types of currency pairs on Forex? What is the difference between main currency pairs and cross currency pairs? How to choose currency pairs for beginners?
Hello gentlemen traders! Forex, as the name suggests, is a forex market. Forex market is a place where people buy and sell currency. And there are three types of currency pairs: main currency pairs, cross currency pairs and exotic currency pairs. Today we will look at what currency pairs on Forex are, how they differ from each other, and what currency pairs to trade for both novice and experienced traders.
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Why do we need currency pairs on Forex?
In the era of globalization, all countries interact with each other, buying and selling different goods to each other. If earlier gold was used for exchange, now for this there are currency pairs that determine the exchange rate between each other.
For example, Japan wants to buy goods from the American company Microsoft. In this case, to conclude a deal, Japan needs to exchange its yen for dollars to pay Microsoft. Therefore, the demand for the US dollar is growing.
If Microsoft wants to buy parts or equipment in Japan, then it will have to exchange dollars for yen. In this case, the demand for the Japanese yen increases.
When buying a particular currency, you must be sure that the country's exports will grow, and its economy will be strong. On the other hand, it is not profitable for exporters to have their national currency grow, as this reduces their profits. Therefore, countries sometimes have a policy of depreciating their own currency against the dollar.
What is a currency pair?
You can’t just buy a currency. You can buy or sell a currency only for another currency. Therefore, they are available as pairs.
If you buy a EUR / USD currency pair, it literally means that you are buying euros and selling US dollars. In the language of traders they say that you entered the "long" (purchase).
Similarly, if you sell EUR / USD, this means that you are buying the US dollar and selling the euro. Traders say that you entered the "short" (sales).
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Types of currency pairs
In the Forex market, there are three types of currency pairs, based on the volume of their trade. These are the main currency pairs, cross currency pairs and exotic currency pairs.
Major Currency Pairs
There are 7 major currency pairs, and they are the most sought after pairs among Forex traders.
Have you noticed anything common to all major currency pairs? Yes, it is an American dollar.
The US economy in all respects dominates the global market. The reason is that large corporations are either registered in the United States or have a significant portion of their customers in the United States.
In addition, most goods, such as gold, oil and other raw materials, are traded in dollars. In most countries, the US dollar is also used as a reserve.
Thus, the global economy as a whole depends on the US dollar in relation to its national currencies.
Best currency pairs for trading
EURUSD - Euro / US Dollar
EURUSD is the most traded pair among the major currency pairs, as well as in the Forex market. It involves the two largest and most powerful economies, namely the United States and the Eurozone. Therefore, it is the most sought after couple.
GBPUSD - British Pound / US Dollar
The British pound was a world currency reserve even before the appearance of the American dollar. At the same time, the policy and economy of Great Britain has always been notable for its power. Even now, the UK stands alone in the Eurozone.
USDJPY - US Dollar / Japanese Yen
The United States and Japan are the two largest exporting countries for cars and electronics. The competition between the economies of these countries is very high, which affects the volatility of the USDJPY currency pair. And as you know, high volatility plays into the hands of traders.
USDCHF - US Dollar / Swiss Franc
Switzerland is a unique country that maintains neutrality in any conflicts. That is why Swiss banks are distinguished by their high reliability. When the market in other countries falls, the Swiss franc becomes the most popular main currency pair.
Commodity currency pairs
Sometimes commodities play a larger role in the following major currency pairs. In turn, the main pairs play a significant role in the price of these goods. Anyway, the goods have a great influence on the Forex market.
AUDUSD - Australian Dollar / US Dollar
Mining is Australia's leading industry. It occupies one of the first places in the production of iron ore, tungsten, zinc, lead and manganese ores, up to 90% of which are exported. Consequently, AUDUSD is often viewed by large corporations and the investment community.
NZDUSD - New Zealand Dollar / US Dollar
New Zealand is a major exporter in the agricultural industry. Its main partners are the USA, Australia, Japan and China. Despite the absence of industrial enterprises in New Zealand, it focuses on companies engaged in the production of goods to meet the needs of aviation, road transport and the defense industry, which are exported to the United States. Therefore, the value of the currency pair NZDUSD can significantly affect the very economy of this country.
USDCAD - US Dollar / Canadian Dollar
The United States is dependent on raw materials such as natural gas and timber from Canada. Natural gas imports can significantly affect the US economy due to its importance over the long winter.
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Cross Currency Pairs
Remove the US dollar from the main currency pairs and cross them with each other. As a result, you will receive minor currency pairs, also called cross currency pairs. Cross-currencies have a higher spread and lower volatility compared to major currency pairs, so they are not recommended for beginners.
Popular Cross Currency Pairs
EURGBP - Euro / British Pound
Britain is the highest economic power, the percentage of global GDP is about 3.5%. The most significant trading partner of the UK is the Eurozone. Consequently, this pair is very sensitive to the trading news of the European region and is constantly under the scrutiny of investors.
EURCHF - Euro / Swiss Franc
Investors consider the dollar as the most reliable investment for all asset classes. The Swiss franc has an advantage when the dollar fails. EURCHF is one of the outstanding couples in which investors take refuge in unstable times.
Exotic currency pairs
As the name suggests, exotic currency pairs are unusual pairs in the Forex market with Turkish lira, Swedish krona, Singapore dollar, etc.
Sometimes trading them can bring high profits. However, the risks are also higher. Therefore, even well-known traders and experienced speculators usually stay away from exotic currency pairs.
Currency Pairs for Newbies
If you are a novice trader, then you better stick to major currency pairs. First, they have the lowest spread. Secondly, the main currency pairs are trend and highly volatile. Finally, it is easier to analyze them, and trading strategies work better for them, for example, Price Action .
Cross currency pairs have a higher spread, which means they are not suitable for scalping and intraday trading.
Exotic pairs in addition to the spread have also increased swaps, which means it is not profitable to keep trades open for several days. We recommend that you stop trading exotic currency pairs altogether.
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Thus, the main currency pairs is a combination of USD with any of these pairs EUR, GBP, JPY, CHF, AUD, NZD, CAD. If you remove USD from them and combine them with each other, you will get cross-currency pairs. Exotic currency pairs are pairs in which any other currency is combined with the US dollar. If you are new to the Forex market, it is better to avoid cross-currency and exotic currency pairs due to high spreads and swaps, as well as unpredictable market behavior.
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