Which Forex Trading Pair Should You Start With and Why?

Posted by admin on Jun 17, 2015

Choose your trading pair

Entering the Forex market, a beginner faces the question: which currency pair to trade with? The most part of beginning Forex traders stop at EURUSD and GBPUSD and, for some reasons, neglect tens of other financial instruments! Focus on specific instruments is a right approach. However, beginners have to be familiar with the currency pairs they can trade with.

Currency pairs in MetaTrader 4 terminal

The “Market Watch” window of the MetaTrader 4 terminal usually shows at least 20 instruments and before you remove them from your portfolio, make sure that your decision is right. Let's consider major pairs by groups:

- Majors — main instruments;
- Crosses — cross rates;
- Exotics — rare currency pairs.

Major currency pairs are most often traded on the Forex market. Firstly, it is EUR/USD (euro - dollar), GBP/USD (English pound - dollar), USD/JPY ( dollar — Japanese Yen), USD/CHF ( dollar — Swiss Frank). Since these pairs are formed by the most substantial currencies, they are called majors. Australian, New Zelanian, Canadian dollars are also related to substantial currencies and AUD/USD, NZD/USD, USD/CAD pairs are majors too.

Each of these instruments has its own features. For example, EUR/USD and GBP/USD better than others fit to trading with application of technical analysis intertwined with fundamental analysis. A high demand of EUR/USD is based on its active behavior, yet movements of this instrument are quite smooth, which brings good profit under intraday and short-term trading.

As a rule, correlation between the pairs EUR/USD and USD/CHF is invert, whereas relation between EUR/USD and GBP/USD is direct. It means that if EUR/USD tends to grow, the most probably, chart of USD/CHF will go down. Intraday charts perfectly illustrate correlation between currency pairs. Open these charts and study the history of data. Using the data from EUR/USD, you can forecast the price of USD/CHF, but this pairs is less stable than euro/dollar and beginners are recommended to be more careful with it.

The strategies based on indicators do not fit USD/CAD well, so scalpers are better to trade with it in the night time.

USD/JPY require a thorough analysis, because intervention of the Japanese Central bank may change its price sharply. Since Japanese economy is heavily dependent on export, the Japanese Central bank keeps national currency rate low against currencies of leading economies. Interventions of the Japanese Central bank were a well-known case and were made through exchange of JPY into USD and EUR to support national export-oriented industry.

When risks on financial markets grow, it tells about consolidation of Yen. Usually this consolidation is caused by Close trades made by investors. Operations with USD/JPY are more efficient within Asian session.

Cross rates 
Cross rates are the currency pairs which do not contain US dollar. In terms of their activity, they give a place to majors. Cross rates include AUD/CAD, AUD/CHF , AUD/JPY, AUD/NZD, CAD/JPY, CHF/JPY, EUR/AUD, EUR/CAD, EUR/CHF, EUR/GBP, EUR/JPY, EUR/NZD, GBP/AUD, GBP/CHF, GBP/JPY, NZD/JPY. Apart from the listed pairs, there are also other cross rates. The pairs with Japanese Yen - EUR/JPY, GBP/JPY, AUD/JPY, NZD/JPY – are good on trends. However, as in the case with USD/JPY, they are heavily subject to interference. Thus, it should not be a beginner's choice, who usually does not have enough skills to make a comprehensive analysis.

Exotic currency pairs like EUR/DDK, USD/MXN, USD/RUB have a poor liquidity. The reason is that currencies of certain countries are weakly notable in the Forex market. Besides, their spread is very high. It is a choice of a few traders who usually live in those countries.

Spot gold and silver
Gold and silver are also financial instruments (but not currency instruments). They form a standalone group and are tied to Euro and US dollar: XAU/USD, XAU/EUR — gold/dollar and gold/euro, XAG/USD, XAG/EUR - silver/dollar and silver/euro. XAU/USD is the most promising among them, whereas the pairs with euro are less liquid, silver trading is not rational, because cost of one point is rather high and risks are high as well.

The pair you should start your trading with 

The best trading instruments for beginners are EUR/USD, GBP/USD, NZD/USD, AUD/USD. Start your trading with one of them. Above we described benefits of each pair, so the final choice is up to you.

Beginners are recommended not to involve many pairs in their trades at the same time. Save your attention to carefully analyze each specific chart of a currency instrument. Specialization in 1 – 3 instruments will supply you with much better results. After you master your skills with majors, you can start to include new trading instruments.

[guest post from Yuriy]

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