Forex trading is challenging, and few traders make money from Forex. Indeed, there's a 95% failure rate for Forex traders. It seems a ridiculously high figure considering that trading Forex is not difficult.
Forex is simple in principle, but we tend to overcomplicate and overthink Forex trading.
With so many currency pairs to trade, how do you know the best currency pairs to choose? Is it better to practice trading Forex with currency pairs we like, or is it best to pick one or two currency pairs for specific reasons?
In the beginning, as a novice Forex trader, you have many questions and herein begins the problem. Browse the internet for Forex trading for beginners, and you will find conflicting answers to your questions.
Forex is an acronym for foreign exchange. Forex is the most liquid financial market with over $6.6 trillion traded 24 hours a day for five days a week. The opportunities to make money from trading Forex are never-ending.
Why do so many Forex traders lose, give up, bust their trading bank and vow never to trade Forex again?
In this article, we look at the best currency pairs to trade for Forex beginners in 2021.
You will discover how many currency pairs to trade as a beginner, the best trending Forex pairs, and how to trade Forex currency pairs effectively.
- What Is Forex Currency Trading?
- What Are The Major Currency Pairs?
- What Are Minor Forex Pairs?
- What Are Exotic Forex Pairs?
- Which Is The Best Currency Pair To Trade In Forex?
- The Top Forex Pairs To Trade For Beginners
- How To Use Technical Analysis For Beginners
- How To Use Fundamental Analysis For Forex Beginners
- Choosing The Right Platform To Trade Forex
- Recap Of The Best Currency Pairs To Trade For Beginner
What Is Forex Currency Trading?
Forex trading is about buying and selling foreign exchange currencies. Forex traders make money from the price fluctuations during market opening times.
Currency pairs consist of two abbreviated currencies, like EUR/USD, which is the Euro/ United States dollar. All Forex currency pairs abbreviate the same way. The first currency (EUR) is called the base currency, and the second currency (USD) is the quote currency.
When you are trading Forex, you see two prices for the base and quote. For example, EUR/USD may show as 1.1932/1.1930. The first price is for buying the Euro, and the second price is to buy the dollar.
Some Forex beginners get confused because of the base and quote showing BUY/SELL on the trading platform.
If you buy the Euro, you believe the Euro is stronger than the dollar and expect the price to rise. If you submit a sell order, you believe the dollar is stronger than the Euro and expect the price to fall.
In a nutshell, that's how Forex works.
What Are The 7 Forex Major Pairs?
The U.S. dollar dominates the top 7 currency pairs purely because the United States has the largest global economy, and the dollar is the dominant reserve currency for the world. Therefore, all of the major Forex currency pairs include the dollar.
The major currency pairs:
- AUD/USD - (Australian Dollar – U.S. Dollar)
- EUR/USD - (Euro – U.S. Dollar)
- GBP/USD - (British Pound – U.S. Dollar)
- NZD/USD – (New Zealand Dollar/U.S. Dollar
- USD/CAD –(Canadian Dollar/ U.S. Dollar)
- USD/CHF - (U.S. Dollar – Swiss Franc)
- USD/JPY - (U.S. dollar – Japanese Yen)
The United States, Australia, Canada, Europe, New Zealand, Japan and Switzerland are financially powerful countries with high global trade volumes. The major currencies have good liquidity and volatility, two things needed to trade Forex. But the major currencies aren't all suitable for Forex beginners, as we will explore later in the article.
One benefit of trading the major Forex currency pairs is the lower spreads. The minor Forex pairs and the exotics have wider spreads, so trading conditions are not as attractive to Forex traders.
Read Also: The 5 Most Traded Currency Pairs
What Are Minor Forex Pairs?
The minor Forex currency pairs do not include the U.S dollar. You may notice wider spreads and less liquidity and trading volume than the major currency pairs.
Liquidity and volume create price movement. If there are no price fluctuations, you cannot make a profit from trading Forex because the price is stationary.
The minors include the Euro, Japanese Yen and Sterling Pound crosses. Because the Forex market is so liquid, although the Forex crosses have less liquidity, it is still enough to trade Forex successfully.
Consequently, the minor Forex currency pairs are popular for many Forex traders. But, trading the minor Forex currency pairs is less attractive for Forex beginners.
Examples of Minor Forex pairs:
What Are Exotic Forex Pairs?
Exotic currency pairs are when major currencies pair with the currency of emerging economic nations, such as Mexico, Denmark, and Brazil.
Examples of exotic forex currency pairs
- AUD/MXN (Australian Dollar/Mexican Peso)
- EUR/TRY (Euro/Turkish Lira)
- GBP/ZAR (Pound Sterling/South African Rand)
- JPY/NOK (Japanese Yen/Norwegian Krone)
- USD/THB (US Dollar /Thailand Baht)
Exotic Forex currency pairs always have low liquidity and volatility. They are unsuitable for Forex beginners because, for the most part, price movement is sluggish.
The major currency pairs offer the best opportunities for trading Forex for beginners. There's no reason to explore the exotic pairs or the minor Forex currencies. You don't need variety to trade Forex successfully. The best Forex traders focus on a small handful of currency pairs and, in some cases, trade one currency pair every day.
Which Is The Best Currency Pair To Trade In Forex?
One of the best currency pairs to trade is the EUR/USD.
EUR/USD has good liquidity and volatility but not too much. Unlike other currency pairs, you won't see so many big price swings when trading EUR/USD. (apart from after economic statements such as non-farm payroll on the first Friday of the month)
EUR/USD has significant historical price reversal zones, and it's easy to use simple technical analysis techniques to assess price action for EUR/USD.
The above image is the 4-hour chart for EUR/USD
EUR/USD broke a major support level at around 1.1950 and headed down in a descending channel. As a Forex beginner, the best option for a high probability trade is to wait for a price break:
- The price breaks and retests below the channel (SELL)
- The price breaks and retests above the channel (BUY)
Trading Forex requires patience and discipline. You might wait a week or a month before EUR/USD breaks out of the descending channel. But, if you watch like a sniper for the perfect moment to enter a trade, you have a good chance of becoming a profitable Forex trader.
95% of novice Forex traders try to trade in this channel, which is around 100 pips. But, the last low failed to make a new low which could indicate selling pressure is weakening.
Wait, wait and wait again if you truly want the yacht and the big house in the future.
Waiting WILL make you a better Forex trader because you do what 95% of traders fail to do.
The Top Forex Pairs To Trade For Beginners
Another great currency pair to trade is GBP/USD. This major currency pair has more volatility than EUR/USD, but profits increase because the price tends to move further.
GBP/USD is easy to read because when it trends, it does so for long periods.
The above image is the 4-hour chart for GBP/USD
Looking at the top of the chart, GBP/USD consolidated for one month before dropping through support (the top black line).
The target area is a historical price zone at just below $1.40, and it is an area where the price of EUR/USD often gets stuck. And below that, the price touched support ($1.38) AND the emerging ascending trendline.
In this scenario, you have two choices, but you have to proceed with caution as GBP/USD moves into the top of the ascending triangle.
- Wait for the price to touch the trendline below and bounce off it. Target your profit zone at below $1.40
- Play the long game – wait for the price of GBP/USD to squeeze into the top of the triangle, where it will break out one way or another.
A while ago, we did a pound to dollar price prediction for 2021 and beyond. We predicted that the price of GBP/USD would bounce between $1.40 and $1.38 for the remainder of 2021. But, we said if the price broke $1.40, it would head up to $1.42, which is what it did. But selling pressure prevailed, and, once again, EUR/USD is back in the zone.
GBP/USD is an excellent currency pair for Forex beginners. It stretches your Forex skills a little more than EUR/USD, but it sharpens your eye for technical analysis.
How To Use Technical Analysis For Beginners
There's no reason to be afraid of technical analysis. Nor do you need to add a hundred technical indicators to your chart. The best thing to do for your Forex education is to learn price action combined with technical analysis.
Study the charts daily without trading. Or practice trading with a demo account. Watch what price action does and how the market flows. You will develop a second sense of price prediction, which confirms your Forex strategy.
Use simple indicators and learn how to use them with your favourite Forex currency pairs.
Let's take a look at a simple strategy for trading Forex using basic indicators.
The above image is the 4-hour chart for AUD/USD
The blue line is a 50 EMA (Exponential Moving Average), and the red line is a 200 EMA. Moving averages track the price and, for the 4-hour or daily chart, a 50/200 EMA is ideal. EMAs are more dynamic than SMAs (Simple Moving Average), so they track the price more closely.
Looking left, the price of AUD/USD got stuck in a small range. The price moved below the EMAs, causing a crossover. Then the price retested the 50 EMAs closely followed by a 100-pip bearish candle.
The crossover confirms price action as the distance between the 50 EMA and the 200 EMA widens. Now the price reaches up but cannot get beyond the 50 EMA.
Currently, the price compresses at the bottom. So, once again, we wait for some action to assess price direction. However, what we can see is that price is weakening.
The below image is a close-up on the 1-hour chart for AUD/USD
The price failed to make a lower low and could be forming a triangle pattern. Triangles are excellent trading opportunities if you are patient.
It's not always easy to identify the price patterns on the higher charts. Drop down to the 1-hour chart, and you get a much clearer picture. Even if you trade the daily chart, spotting an entry point occurs on a lower timeframe.
For this example, we used two moving averages and a couple of lines on the charts - no oscillators, Bollinger bands or Fibonacci levels. Simple, straightforward and easy to read price action.
The secret to becoming one of the 5% of successful Forex traders is to keep it simple. Be patient and allow the Forex market to come to you instead of chasing impossible trades.
You can find setups like the AUD/USD on multiple charts every trading day.
How To Use Fundamental Analysis For Forex Beginners
Fundamental analysis isn't complicated, especially if you only trade a couple of currency pairs each day. The premise is to research the macroeconomic data of the countries you are trading currencies.
Interest rates and inflation have an impact on currency prices. The central banks can influence currency prices by changing interest rates. They do this to protect international trading and their economy.
Check GDP (Gross Domestic Products) data and unemployment rates as these are also a measure of a country's economic status.
Follow an economic calendar so you can keep up to date with changes to financial data for the currencies you trade.
Fundamental analysis is far easier if you focus on trading a small handful of currency pairs each day.
Choosing The Right Platform To Trade Forex
It's all very well finding the best currencies to trade Forex for beginners, but choosing the right platform for Forex trading is just as important.
Always trade with a regulated broker with a licence for providing a trading platform for your country.
The below list shows the regularity bodies for specific countries.
- United Kingdom - Financial Conduct Authority (FCA)
- Cyprus - Cyprus Securities and Exchange Commission (CySEC)
- Australia - Australian Securities & Investments Commission (ASIC)
- United States – The National Futures Association (NFA)
- Canada - The Investment Industry Regulatory Organization of Canada (IIROC)
- Japan – The Financial Services Agency (FSA)
- Cayman Islands - Cayman Islands Monetary Authority (CIMA)
- Hong Kong - The Securities and Futures Commission (SFC)
- Singapore - The Monetary Authority of Singapore (MAS)
Most Forex brokers highlight their trading licence on the website homepage.
Before depositing your money with a Forex broker, research customer service reviews, ease and methods of withdrawals, minimum deposits, spreads and commission rates.
Recap Of The Best Currency Pairs To Trade For Beginner
EUR/USD is the best Forex currency pair for beginners. GBP/USD is a secondary currency pair more suited to a Forex beginner with a bit of experience.
The major currency pairs are the best to trade Forex because they have good liquidity and volume. Every Forex broker has the majors and the minor crosses available for trading Forex.
Exotic currency pairs have low volatility and liquidity and are not suitable for trading Forex for beginners.
Use simple technical analysis techniques for trading Forex currency pairs and add fundamental analysis as a way of confirming potential direction for a currency pair.
Moving averages, support and resistance lines, trendlines and channels are simple to add to your chart and measure probable price direction for Forex currency pairs.
Choosing a regulated broker for Forex trading is a priority. Make sure the broker is licenced to provide a trading platform for your country. Do your research on a broker before depositing funds. How do they handle customer issues? Most brokers have TrustPilot, where you can see what other traders say about trading Forex with your broker.
Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.
Trading or investing in financial instruments may not be suitable for all investors. It does involve risk and the possibility of a loss of capital.
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How Many Currency Pairs Should I Trade as a Beginner?
Ideally, trade no more than two Forex currency pairs each day. The reasoning for this is that becoming familiar with a currency pair significantly increases your chance of successful Forex trading.
Each currency pair has a unique way of moving on the charts. Some currency pairs respect historical price zones, and others sail straight through support or resistance.
When you first start trading Forex, you may feel overwhelmed daily. The brain struggles to grasp all of the activity on the chart. When trading the same pairs every day, your brain filters out a lot of noise, making for a clearer mental picture of what is truly happening on the charts.
When is the Best Time to Trade Forex?
The 4 major trading sessions are:
- London (08:00 - 17:00 GMT)
- New York (13:00 - 22:00 GMT)
- Sydney (22:00 - 07:00 GMT)
- Tokyo (00:00 - 09:00 GMT)
London and New York are good trading sessions for the majors.
For the first three or four hours, liquidity is high as London and the USA are trading Forex. But, the best time to trade Forex is to trade at the same time each day. Treat Forex as a business, and you will reap the rewards.
Can I get rich from trading Forex?
If you want to get wealthy from trading Forex, the criteria are the following:
- You must be consistently profitable trading Forex
- You need a significant amount of capital – if you gain 10% a month but trade low-risk with each trade, no more than 1%, you would need $100k to return $10k monthly profit.
- Focus on becoming a better trader each day, rather than fixating on making a lot of money
Which currency pair is the easiest to trade?
In reality, the easiest Forex currency pair to trade is the one you are familiar with and one you enjoy trading. Beginners most often trade EUR/USD because the volatility is not too high and technical analysis is uncomplicated.
How much money do I need to trade Forex?
You can start trading Forex with a few hundred dollars.
Most Forex brokers offer micro-lots, so you can still trade low-risk if you don't have much money. Practising with micro-lots is an excellent way to trade Forex live without risking a lot of money.
If you want to make money from trading Forex, a few thousand dollars will get you started. It takes patience and time to build a Forex account, but you can build up substantial working capital if you compound your daily profits.
Can I day trade Forex in two hours or less?
You can day trade Forex in two hours or less. Indeed, the less time you spend staring at the charts, the better. After two hours of trading Forex, it's easy to make mistakes as you lose focus and concentration.
You can find out more about day trading Forex in our extensive guide on how to trade Forex in two hours (or less)
What are the best currency pairs to trade right now?
The major currency pairs are always great for trading Forex for beginners.
Most of the USD pairs are currently moving into an area where the price could break out and change direction.
Choosing the best currency pairs to trade has to be assessed daily. What looks like a good Forex trade today may not be suitable to trade tomorrow.
No matter what information your analysis predicted in your last trading session, continually reassess the charts before taking a Forex trade. Small shifts in price aren't always easy to observe. But the price could be forming a new pattern, falling off a trendline or starting a period of consolidation.