Forex trading is a popular investment option worldwide. The foreign exchange market, also known as forex, is the largest market globally, with a daily trading volume of over $5 trillion. Forex trading involves buying and selling currency pairs with the aim of making a profit. There are numerous currency pairs available for traders to choose from, but not all pairs are suitable for trading. In this article, we will discuss which pairs to trade and which ones to avoid.
Major Currency Pairs
Major currency pairs are the most traded pairs in the forex market. They include the US dollar, euro, Japanese yen, British pound, Swiss franc, and Canadian dollar. These currency pairs have high liquidity, which means they are easy to buy and sell, and their volatility is low, making them less risky. Major currency pairs are the best choice for beginners because they have low spreads and are easy to analyze.
EUR/USD (Euro/US Dollar)
The EUR/USD pair is the most traded currency pair in the forex market, accounting for over 20% of the total trading volume. The euro is the base currency, while the US dollar is the quote currency. The pair has high liquidity and low volatility, making it an excellent choice for traders. The EUR/USD pair is affected by economic data releases from the Eurozone and the US, making it an excellent pair for fundamental analysis.
GBP/USD (British Pound/US Dollar)
The GBP/USD pair is another popular currency pair in the forex market, accounting for over 9% of the total trading volume. The pound is the base currency, while the US dollar is the quote currency. The pair has high liquidity and low volatility, making it an excellent choice for traders. The GBP/USD pair is affected by economic data releases from the UK and the US, making it an excellent pair for fundamental analysis.
USD/JPY (US Dollar/Japanese Yen)
The USD/JPY pair is a popular currency pair in the forex market, accounting for over 13% of the total trading volume. The US dollar is the base currency, while the Japanese yen is the quote currency. The pair has high liquidity and low volatility, making it an excellent choice for traders. The USD/JPY pair is affected by economic data releases from the US and Japan, making it an excellent pair for fundamental analysis.
Minor Currency Pairs
Minor currency pairs are currency pairs that don’t include the US dollar in their pair. They include currency pairs such as EUR/GBP, EUR/CHF, and GBP/JPY. Minor currency pairs have low liquidity and high volatility, making them more risky than major currency pairs. These pairs are not suitable for beginners, and traders should have a good understanding of the market before trading them.
Exotic Currency Pairs
Exotic currency pairs are currency pairs that include currencies from emerging or small economies. They include currency pairs such as USD/ZAR, USD/TRY, and USD/THB. Exotic currency pairs have very low liquidity and very high volatility, making them the most risky currency pairs in the forex market. These pairs are not suitable for beginners or inexperienced traders.
Conclusion
In conclusion, traders should focus on trading major currency pairs because they have high liquidity and low volatility, making them less risky. Beginners should start with the EUR/USD, GBP/USD, and USD/JPY pairs because they are easy to analyze and have low spreads. Minor currency pairs and exotic currency pairs should be avoided by beginners because they have low liquidity and high volatility, making them more risky. Traders should have a good understanding of the market before trading these pairs. In summary, choose your currency pairs wisely to minimize risk and maximize profits.
