Forex Pairs: What Is The Most Ideal Currency Pair To Trade?

Forex pairs are always involved in foreign exchange trading. The pair is the 2 currencies involved in your trade. For instance if you are exchanging US dollars for Swiss francs, the currency pair is USD/CHF.

In theory, you can trade any 2 currencies of the world, however in practice most foreign currency trading has limitations to the currencies of the greater financial powers. This doesn’t necessarily indicate the largest or most politically powerful nations. Switzerland for instance is just a small country yet is a main player in the financial markets due to the worldwide importance of the Swiss banks.

There are six major forex pairs which together account for 90 percent of the funds traded on the foreign exchange markets. These are:

• EUR/USD: the euro and US dollar.
• GBP/USD: the British pound and US dollar, nicknamed “Cable” since it was once synchronized on both sides of the Atlantic by a cable running beneath the ocean.
• USD/JPY: the US dollar and Japanese yen.
• USD/CHF: the US dollar and Swiss franc.
• AUD/USD: the Australian dollar and US dollar.
• USD/CAD: the US dollar and Canadian dollar.

A few traders do get involved in other combinations of these major currencies or pairs which include other currencies like the New Zealand dollar. However in the beginning it is advisable to stick with the majors.

The US dollar is the most significant single currency and is involved in 85 percent of trades as outlined by a 2007 study. The euro is second at 37 percent. After that come the yen, pound, Swiss franc, AUD and CAD in that order. If you are asking yourself why these add up to more than 100 percent, this is because there are always 2 currencies in every single trade.

What is the Most Ideal Currency Pair for a Newbie?

If you are a newbie in forex trading, most experts recommend beginning with the EUR/USD pair. This is due to the fact there is a lot of details about these currencies and the high liquidity results in a smaller spread, so your costs will be lower.

A few of the other currencies have certain characteristics which make most beginners avoid them unless they have specific knowledge. For instance the value of the Canadian dollar is highly affected by the price of oil since Canada is an oil exporter. The Japanese yen can also be influenced by the price of oil in the opposite direction mainly because Japan is a large consumer and importer of oil.

You do not want to get involved in many different currencies when you are starting out. The best thing to do is most likely to take the EUR/USD market and remain with that for the first couple of months at a minimum. GBP/USD would be the second option of the major forex pairs for most new traders.