Brokerage companies, competing with each other, are constantly improving their service. One of the key areas is the commissions and the number of trading assets. Today it is difficult to surprise anyone with an opportunity to trade dozens or even hundreds of CFD contracts and currency pairs. But the quantity that many traders are chasing has nothing to do with quality. Moreover, such diversity confuses beginners, especially if they are not aware of the basics: what is a currency pair, how it is organized and what types it can be. Actually, in this article we are going to make up for this gap and give several recommendations, using which you will be able to easily find a trading asset.
Currency pair is a trading asset at the Forex exchange market and it consists of two separate currencies, namely the base currency and the quoted one. In fact, the price chart that you can observe is nothing more than the ratio of the value of these two currencies. However, it is worth clarifying that the base currency is the one that is bought or sold and it is the first in the currency pair, while the second quoted currency is the one that we are making the transaction for. Thus, seeing a chart of the currency pair GBPUSD, in front of you the exchange rate of the British pound against the U.S. dollar.
What are the currency pairs at Forex?
You can see the list of instruments in MetaTrader 4 in the “Market Watch” window. The list of all available trading pairs at your broker can be obtained by right-clicking on the window and selecting the “Symbols” item.
As we have noted, there are more than two dozen currency pairs, moreover, every currency unit of the world can be included in a currency pair if the company or liquidity provider wishes. That is why their quantity may be really enormous. Nevertheless, in professional environment there is the following division:
- Cross (Minors);
Let’s talk about each type in more detail.
Majors are the major currency pairs at Forex, which primarily include the dollar. It is important to note that all the majors are based on the following most popular currencies in the world:
- EUR – Euro
- GBP – Pound Sterling
- USD – American dollar
- AUD – Australian dollar
- NZD – New Zealand dollar
- CAD – Canadian dollar
- JPY – Japanese Yen
- CHF – Swiss franc
It is this eight that generates most of the world economy. The major currency pairs are GBPUSD, EURUSD, AUDUSD, NZDUSD, USDCAD, USDJPY, USDCHF.
Major currency pairs, unlike others, due to their demand on financial markets have the highest liquidity. Simply put, traders can almost always without any problems open a position even in a strong imbalance of supply and demand, for example, after the news release. They also have sufficient volatility to implement any strategy.
It should be noted that in most cases this group of assets in the best brokers has a low spread (close to zero) and no or minimal turnover fees. That’s why these currency pairs are the best for Forex beginners. Also we should not forget that the CB interest rates of these currencies tend to zero, so they are perfect for long term trading due to a small swap.
This is a huge group of trading assets, the main feature of which is the absence of the dollar in the ticker. As an example, the following symbols can be mentioned: EURCAD, EURCHF, GBPAUD, NZDCAD and many others. It should be noted that, despite the absence of the dollar, its influence on the cross-rates is still huge. Therefore, news about the world’s largest currency will also have to be taken into account.
Minors have sufficient liquidity to trade them successfully, nevertheless the volatility may be different (from an insignificant 1.9% monthly change in value for EURGBP to 5.5% for CADJPY).
The key disadvantages of working with them are as follows:
- Higher spreads;
- High swaps (not all pairs);
- Weakly suited for strategies with small targets (scalping, pipsing).
This group of trading assets may have as part of its composition, as well as be completely without it. Their main feature is their low liquidity. The following pairs can be given as an example: USDUAH, USDMXN, USDRUB, EURDDK, EURNOK, USDSGD, etc.
It is important to understand that these assets are poorly predictable and that spontaneous news or large players can easily fall or rise in price. Because the demand for them is small, the spread and swap are usually huge and their liquidity is minimal. That is why they are very difficult to use in practice, and even more unsuitable for short-term trading.
You can use our indicator DaVinci Symbol Switcher for convenient switching of currency pairs on the same chart.
Currency pairs for beginners or how to make a difficult choice
In the process of choosing a currency pair the following two rules should be followed:
- The selected asset is not expensive to service (spread, commission, swap should be minimal);
- The currency pair should be liquid and volatile.
Traders on the Forex market earn only in one case – if the market moves! In practice, this means that beginners and professionals need currency pairs with high volatility. Taking into account the low commissions at TickMill and IC Markets brokers, the following currency pairs fall under this criterion: EURUSD, GBPUSD, AUDUSD. The best way for beginners is to trade only in majors because they allow the implementation of any trading strategy with minimal costs. Exotic instruments are not recommended.
More experienced traders can base their choice on the type of trading strategy they use. For example, for trend strategies, pairs that travel long distances in a day, week, or month (depending on the chart scale used) are excellent. List of trending currency pairs: AUDUSD, AUDCAD, NZDUSD, USDJPY, EURCAD.
If the strategy used is flat or for trading within a range, the price needs to move practically in place, without updating its extremums regularly. Such assets may include EURJPY, EURCHF, EURGBP.
However, it is important to understand that the properties of a currency pair can greatly change: economic news, geopolitical events, and the like. Therefore a safe harbor may become a storm and vice versa, and you should be prepared for that.
In addition to currency pairs in the Forex market, there are pairs with precious metals. These are gold and silver. In most cases, traders trade metals in pairs with the dollar, and less frequently with the euro: XAUUSD, XAGUSD, XAUEUR, and XAGEUR. Trading these pairs is not related to trading at the foreign exchange market, it’s metal trading.
It should be noted that trading metals is more difficult than currencies and is the destiny of professional traders or automated Expert Advisors.
In conclusion, it should be noted that absolutely any currency pair can bring both profit and loss. However, if we speak about the majors, it is much easier to trade them because the entire trading community revolves around them. Analytics, technical analysis tools, and even robots all work best on major currency pairs. Nevertheless, only testing your strategy will give you a clear answer to whether or not this currency pair is suitable for you. You should start trading with a single symbol, and then add new symbols and withdraw pairs that will not work for your strategy. Eventually, you will accumulate a necessary set of instruments customized for you.