When it comes to executing the first trade, one often gets confused about which currency pair to choose. The point is that there are dozens of available majors, minors, and exotic pairs that vary in spreads, liquidity, volatility, and other aspects. Making the right decision is a real challenge when one does not have much experience or knowledge under one’s belt.
What Does a Currency Pair Mean?
It is a pair of assets, one of which is sold or bought at the price of another. The currency, which is indicated the first on the left, is called a base currency, and another one is referred to as a quote currency. A base currency is the one, which is actually bought or sold. And a quote currency serves as a price. For example, if you see the following pair USD/EUR=1.16, that means that you can buy 1 American dollar for 1.16 euros.
Which Currency Pairs Are the Best to Trade?
In general, there are three types of currency pairs:
· Majors. These include exclusively national currencies belonging to the most influential countries in the world. Namely, the USA, Canada, the European Union, the United Kingdom, Switzerland, Japan, New Zealand, Australia. Another important detail ― they always include American dollars as either a base or a quote currency.
· Minors (or crosses). That states for combinations of all the currencies from the previous group except for US dollars.
· Exotic pairs. This term is used for pairs including national currencies of developing countries. In most cases, they consist of one currency from majors and another exotic one. However, that is not obligatory.
Still, the question is left ― “Which currency pair to select?”. Most experts insist that both beginners and experienced traders should focus on majors in the first place. This type is characterized by the highest demand among traders and the lowest spreads. Besides, it is much easier for a trader to find relevant statistics and forecasts concerning majors. And the least popular group is exotic currency pairs as they are characterized by the lowest liquidity and the highest spreads. It is the hardest variant to earn from as their prices can stay unchanged for months and even years.