Forex trading, also known as foreign exchange trading, is the process of buying and selling currencies with the aim of making a profit. The forex market is the largest financial market in the world, with an estimated daily trading volume of $5.3 trillion. With such a vast market, there are numerous currency pairs to choose from, and it can be overwhelming for a beginner to decide which currency pairs to trade. In this article, we will explore what to trade in forex.
1. Major Currency Pairs
The major currency pairs consist of the US dollar and the currencies of the world’s largest economies. These include EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, and USD/CAD. These currency pairs are the most liquid in the forex market, and they offer tight spreads, making them ideal for beginners. The US dollar is the most traded currency in the world, and as such, it forms one half of almost all major currency pairs.
2. Cross Currency Pairs
Cross currency pairs do not involve the US dollar. Instead, they involve two major currencies, such as EUR/GBP or AUD/JPY. These currency pairs are less liquid than major currency pairs, and they may have wider spreads. However, they can offer opportunities for traders who want to take advantage of the relative strength or weakness of two currencies.
3. Exotic Currency Pairs
Exotic currency pairs involve one major currency and one currency from a developing or emerging economy. Examples of exotic currency pairs include USD/ZAR, USD/BRL, and USD/THB. These currency pairs are less liquid than major and cross currency pairs, and they may have wider spreads. However, they can offer higher potential returns for traders who are willing to take on more risk.
4. Commodity Currency Pairs
Commodity currency pairs involve currencies from economies that are heavily reliant on commodity exports. These include the Australian dollar, Canadian dollar, and New Zealand dollar. Examples of commodity currency pairs include AUD/USD, CAD/USD, and NZD/USD. These currency pairs are influenced by commodity prices, and they may offer opportunities for traders who want to take advantage of trends in commodity markets.
5. Safe Haven Currency Pairs
Safe haven currency pairs involve currencies that are considered safe investments during times of economic uncertainty or market volatility. These include the US dollar, Japanese yen, and Swiss franc. Examples of safe haven currency pairs include USD/JPY and USD/CHF. These currency pairs may offer opportunities for traders who want to take advantage of market volatility or hedge against risk.
Conclusion
Choosing the right currency pairs to trade in forex is important for any trader, whether they are a beginner or an experienced professional. The major currency pairs are the most liquid and offer tight spreads, making them ideal for beginners. Cross currency pairs, exotic currency pairs, commodity currency pairs, and safe haven currency pairs offer opportunities for traders who want to take advantage of specific market trends or take on more risk for higher potential returns. Ultimately, traders should choose currency pairs that suit their trading style, risk tolerance, and investment goals.
