Those new to Forex often ask themselves a question: which currency pair should they start with? Financial incompetence often pushes beginners to a wrong choice, and therefore they don't reach desired trading results. This article provides information on the groups of currency pairs and some dangers the traders may encounter when choosing a financial tool.
So, all currency pairs are conventionally subdivided into 3 groups:
- Major currencies
- Exotic pairs
Let's dwell on each of these groups.
Major currency pairs are the most popular with all Forex traders, regardless of their level of expertise. This group includes EUR/USD, USD/JPY, and USD/CHF. These pairs are considered as majors since they are the most stable pairs in the currency market. AUD/USD, NZD/USD, USD/CAD are often regarded as stable pairs too. All the above mentioned currency pairs have their advantages and disadvantages, and their fluctuations may be estimated by use of fundamental or technical analyses.
Now let's talk about low liquid currency pairs whose direction is harder to calculate.
Exotic currency pairs are low liquid currency tools that have almost no impact on the Forex market. The examples of these pairs are EUR/DDK, USD/MXN, USD/RUB. Low liquid currencies are often associated with big spreads, which is the main reason for beginner traders' losses. Only professional traders trade these currency pairs.
Cross-rates are currency tools which don't include the US dollar. In terms of reliability and liquidity, they are somewhere between majors and exotic pairs. NZD/JPY, AUD/NZD, CHF/JPY, EUR/AUD, CAD/JPY are an example of cross rates. These currency pairs are reliable enough, but they may be exposed to various impacts off and on. In order to calculate the movement of these pairs, a trader should possess good analytical capacities and theoretical knowledge.
I would recommend that beginner traders should start with stable low risk pairs, such as EUR/USD, NSD/USD, AUD/USD. However, if you are not 100% confident in your trading strategy, you can always try your forces on a demo account.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.