For beginners in the UK, the first challenge in forex is not how to place a trade but which currencies to trade. With dozens of pairs available, the choice can feel overwhelming. Each reflects the relative strength of two economies, shaped by interest rates, politics, and global events. Considering these forces, alongside costs and volatility, helps new traders focus on pairs that are manageable and relevant to their experience.
Note: Currency volatility is the rapid and unpredictable change of exchange rates in the forex market. Volatility helps you to know the currencies to trade and how. It’s a measure of standard deviation. More volatility means more trading risk and more opportunity for traders because the price moves are more significant.
Some Basics About Currency Trading
Foreign exchange, or forex, is always traded in pairs. One currency is bought while another is sold. For example, GBP/USD shows how many US dollars are needed to buy one pound. The first currency is the “base” and the second the “quote”. If GBP/USD rises, the pound is strengthening; if it falls, it is weakening.
Most beginners trade through online brokers rather than banks. Platforms allow you to choose a pair, place an order, and speculate on movements without handling the currencies directly. Trades are measured in lots: standard, mini, or micro. This makes forex accessible even with small balances.
What is a Currency Pair?
A currency pair is the notation comparing two national currencies. For instance, EUR/GBP at 0.85 means one euro equals 85 pence.
Behind this simple price lie many forces. Exchange rates respond to interest rates, inflation, political events, and global trade. For UK traders, pairs such as GBP/USD or EUR/GBP often move sharply after Bank of England announcements or major data releases. Each pair reflects the interaction of two economies in real time.
Liquidity – Primary Motive For Beginners
Liquidity in forex refers to how easily a pair can be traded without sharp price swings. High liquidity means many buyers and sellers, smoother execution, and lower costs. The most liquid pairs include GBP/USD, EUR/USD, and USD/JPY, which dominate global trading volume.
For beginners, liquidity is important. Popular pairs usually have tighter spreads, so costs are lower. They also move more steadily than exotic pairs such as GBP/NZD or GBP/TRY, which can be unpredictable and costly.
The US dollar appears in nearly nine out of ten global trades, with the euro and yen also ranking highly. For UK traders, focusing on these pairs keeps trading simpler and cheaper.
Liquidity does not remove risk, though. Even major pairs can swing during events like Bank of England or Federal Reserve announcements. The busiest sessions, especially when London and New York overlap, often provide the best conditions.
Choosing Pairs To Trade
Selecting a currency pair depends on three main factors: familiarity, volatility, and cost.
Familiarity: Many UK traders begin with pairs that include the pound. GBP/USD or EUR/GBP feel natural because domestic news and Bank of England updates are easy to follow.
Volatility: Some pairs, like EUR/GBP, usually move in smaller daily ranges, making them easier for beginners. Others, such as GBP/JPY, can swing sharply and require more caution.
Cost: Every trade involves a spread, the gap between buying and selling prices. Majors like GBP/USD or EUR/USD have tight spreads, while exotic pairs such as GBP/TRY can be far more expensive. Broker choice also matters, and many of the most reliable options appear in rankings of forex brokers UK.
There is no single best pair. The right choice depends on how closely you can follow the market and the level of risk you are ready to take.
Find out about the forex signal providers in the UK in our other complete guide.
Currency Pair Categories
For beginners, it makes sense to start with the world’s most traded currency pairs, known as the majors. They all include the US dollar and account for most daily forex turnover. Majors offer high liquidity, lower costs, and constant news coverage. Each has its own character, shaped by the economies it represents.
The most traded pair globally, EUR/USD compares the euro with the US dollar. It has deep liquidity and tight spreads, keeping costs low. Movements are driven by the European Central Bank, the US Federal Reserve, and economic data from both regions. For new traders, EUR/USD is often seen as a relatively steady starting point.
USD/JPY shows how many yen are needed for one dollar. The yen has a reputation as a safe-haven currency, often strengthening when global markets turn cautious. Bank of Japan policy, alongside US economic data, heavily influences the pair.
Known as “Cable,” GBP/USD tracks the pound against the dollar. It is widely followed in the UK and known for volatility, especially since Brexit. Bank of England policy, UK growth figures, and political events often trigger sharp moves.
AUD/USD reflects the Australian dollar’s value against the US dollar. It is linked to commodity prices, particularly demand from China. The Reserve Bank of Australia’s decisions are another major driver.
This pair highlights the Swiss franc’s role as a safe-haven currency. It often strengthens in times of global uncertainty. The Swiss National Bank also intervenes to manage franc strength, making USD/CHF a useful gauge of risk appetite.
Called the “Loonie,” USD/CAD is closely tied to oil prices, with the Canadian dollar strengthening when oil rises. Canadian economic releases and US trade data also move the pair.
NZD/USD compares the New Zealand dollar with the US dollar. It is influenced by agricultural exports, commodity demand, and Reserve Bank of New Zealand policy. Also, China’s economy often plays a decisive role in its direction.
FX Pairs With the Most Pips
A pip is the smallest price change in a forex quote, usually the fourth decimal place. Some pairs are known for large daily moves. GBP/JPY, for example, is highly volatile and can swing by hundreds of pips in a single session.
Big ranges may appeal to beginners but also increase risk. Larger swings mean bigger potential losses if a trade goes the wrong way. By contrast, pairs like EUR/GBP tend to move in narrower ranges. They may feel less exciting, yet their stability makes them easier to manage.
How Do You Trade Currency?
Trading forex means speculating on whether the base currency will rise or fall against the quote. If you believe the pound will strengthen against the dollar, you go long on GBP/USD. If you expect it to weaken, you go short.
Modern platforms make this straightforward. You can trade fractions of a lot, so you do not need a large account. With leverage, a UK beginner could open a £1,000 position using only a small deposit. The key is that leverage works both ways: it can increase profits but also magnify losses.
Learn Forex Trading: Understand how the market works before trading. Knowing the basics of pips, spreads, and leverage helps manage risk.
Open a Trading Account: Most UK traders use brokers regulated by the Financial Conduct Authority (FCA). Opening an account means verifying your identity, funding it, and accessing the platform.
Choose a Currency Pair: Select one pair to follow closely. Many start with majors like GBP/USD or EUR/USD, which have low costs and high liquidity.
Get a Trading Strategy: Have a clear plan, whether based on technical charts, economic news, or both. Consistency matters more than chasing quick wins.
Be Updated on the Forex Market: Currencies react quickly to news. Watch central bank announcements, UK data, and global events. Staying informed explains movements and prepares you for sudden shifts.
Risk Management
Engaging in forex trading necessitates a firm grasp of its dynamic nature, which involves trading currency pairs and substantial market volatility, leading to potential gains as well as losses. Before entering the forex market, crafting a well-defined trading strategy and establishing a robust risk management plan to safeguard your investments is essential.
Moreover, exercising caution is imperative, as there is a risk of encountering forex broker scams and unregulated platforms. Since this market operates 24/7, always invest with what you can afford to lose. Plus, stay informed about market developments and continuously educate yourself to make well-informed trading decisions.
Remember that past performance does not indicate future results, and there are no guarantees of profit in forex trading.
Every trade carries risk, and controlling it is vital. The most common tools are:
- Stop-loss orders: Close a trade automatically if it moves too far against you.
- Position sizing: Keep each trade small enough so that one loss does not damage your account.
- Diversification: Avoid putting all your exposure into one currency, especially if you already hold income or savings in it.
For UK beginners, risk management is essential. Even small price changes can cause large swings when leverage is involved, so discipline must come first.
What Moves Currency Pairs?
Exchange rates move because of a mix of economic forces and market sentiment. Key drivers include:
- Interest rates: Higher rates often attract investors and strengthen a currency.
- Economic data: GDP, inflation, and employment figures can shift expectations quickly.
- Politics: Elections, referendums, and trade talks can create sudden volatility.
- Global events: Oil prices, wars, and financial crises affect currencies across the board.
A striking example was the pound’s sharp fall after the Brexit vote in 2016, when GBP/USD dropped by record amounts within hours.
Forex Currency Pairs Correlation
Currency pairs often move together. For example, EUR/USD and GBP/USD both include the dollar, so they often trend in the same direction. This relationship is called correlation.
Beginners should be aware of it, because holding two correlated positions may double the risk rather than spread it. Buying both EUR/USD and GBP/USD is effectively betting twice against the dollar.
Currency pair correlation is the similarities shared by pairings. In the forex market, currencies are interdependent. To manage your portfolio profitably, you need to understand forex correlation pairs and the relationship between currency pairs.
Consider if a currency pair is positively or negatively correlated. Are they likely to move in the same/opposite direction? You have to consider all that as you trade on currency pairs.
How to Trade Forex Beginning With One Pair
Many experienced traders suggest starting with a single pair. It allows you to focus on the news, learn its patterns, and build confidence without spreading attention too thin.
For UK traders, GBP/USD is a natural starting point. It is highly liquid, widely reported, and familiar. Once comfortable, you can add other pairs for more variety and opportunities.
Conclusion
Choosing a currency pair is less about finding a hidden winner and more about matching your knowledge with the right balance of liquidity and volatility. For beginners in the UK, the sensible approach is to start with popular, well-traded pairs, observe how they react to events, and apply strict risk controls.
Forex trading brings together economics, politics, and market psychology. Progress comes from starting with manageable steps, gaining experience, and staying disciplined as you grow.
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