Financial markets are broad and versatile. A trader can choose from different types of assets. Those can include forex currency pairs, shares, bonds, crypto currencies, or commodities, and they differ in various ways. Some tend to be riskier than others, while some are more suitable for novice traders than others.
What is forex?
A beginner trader might ask: what is forex? In this article we will focus on answering that question, and talk about some forex currency pairs, their properties, and which pairs are preferable to trade for beginners in this domain.
Best forex pairs for beginner traders
Forex refers to foreign exchange, which is a vast market in which you can trade currencies against each other. Usually, currencies are traded in pairs, and thus you are trading the exchange rate.
Forex pairs can be categorized as major, minor, and exotic pairs. For the most part, major pairs are somewhat more advantageous to trade because they are more liquid. The liquidity usually reduces the cost of trading (usually called spreads). Among the best major forex pairs to trade are:
- Euro vs USD. The EUR/USD is probably the most liquid asset in the world. It involves the two most liquid currencies globally. International trade relies heavily on the Euro and the USD even in areas where they are not the main currencies. The USD has been strengthening for the last few months, but now it seems to be losing momentum. This means that the Euro is likely to strengthen against the USD in the near future. Long positions in EURUSD are currently preferred with the right strategy.
- US Dollar vs the Japanese Yen. The USDJPY is a well-known currency pair, particularly for the fact that it often goes down when the risk sentiment is weak (when investors are worried) and goes up when investors have courage and appetite for risks. The Yen is a strong currency even though the Central Bank of Japan maintains a very accommodative policy in an attempt to achieve its inflation target. The pair currently seems to be entering a correction after an uptrend, despite the fact that the Fed is expected to raise rates even further. Long positions are not recommended at this point unless there is a clear new signal.
- The sterling pound against the US Dollar, or GBPUSD. The UK economy is among the most advanced in the world. The sterling used to be the main reserve currency before the US Dollar took that status. However, today, the UK economy seems to be dealing with many pressures such as inflation. The GBPUSD has been moving in a downtrend for a few months now, but there seems to be a correction forming. This coincides with a weakening Dollar (at least temporarily). There are currently no continuation signs, and short positions are not recommended at this point.
- The Australian Dollar against the Japanese Yen. The AUDJPY is often used as a gauge for risk, especially with the Australian Dollar being exposed heavily to risk from the Chinese economy. The pair has recently reversed a move to the upside by at least 50 percent. There is no clear signal on this pair, but it is generally highly liquid and advantageous to trade.
The major currency pairs are advantageous to trade because the cost of trading them tends to be lower (because the spreads are smaller). However, this must not mean that you should not explore other pairs if there are good opportunities and if you have a trusted broker.
Image Courtesy: unsplash.com