Trading with low spread pairs is important to minimize costs. If you're a beginner and have no idea where to begin, here's a guide to recognize the best currency pairs with low spreads.
One of the most important things to look out for in forex trading is spreads. This can significantly impact the profits you make at the end of the day. Let's dive into what exactly are spreads and some of the best low spread pairs in the market, especially for beginners:
What is a Spread?
A spread is just the difference between the price that is being provided to you by your broker and the price that is being offered on the market for a certain currency pair. A spread is a more technical phrase that refers to the difference between the price that is being bid and the price that is being offered on the market.
Additionally, it is the difference between the price at which a currency pair is bought and the price at which it is sold. A spread is a fee that is charged by every broker on their assets. Profit for the broker is determined by the price differential among others.
The spread that certain brokers charge may be higher than the spread that others charge. Others may provide you with small spreads, but in exchange, they will charge you a commission. Your sort of spread could be different depending on the broker you choose and the kind of account you have.
See also: Forex Brokers Spread Comparison
Best Currency Pairs by Their Spreads
While spreads vary with different brokers, certain pairs are known to have low spreads no matter what broker you choose. Here are the best low spread pairs for beginners:
This is the currency pair that accounts for about 20% of the market's overall trading volume. Because of this, the EUR/USD pair now has the tightest spread of any pair. During normal market condition, the variable spreads for this currency pair can fluctuate anywhere from 0.1 to 3 pips. Additionally, this is dependent on the broker. When it comes to fixed spreads, the range is anything from 0.3 to 5 pips.
It is common understanding that volatility in this pair will surge whenever there is news event. After all, the most widely covered currency pair in the news is the EUR/USD pair. The US Dollar is sensitive to a high volume of news events, economic calendars, activity on social media platforms, and political events.
On the other side, when we consider how Eurozone is made up of many different nations, we can see how a crisis in any one of them may damage the Euro. Even though EUR/USD has the average lowest spread among currency pairs, the fact that it participates in a variety of trading sessions and experiences surges in volatility makes trading in this currency pair fascinating.
One of the biggest economies in the exporting business is Japan (JPY), whereas the US is a major importer (USD). In addition, there are two completely separate trading sessions concerning the USD/JPY pair. When you combine this with the normally tight spreads, you can see that there is some potential for trading here.
This particular currency pair has a changeable spread that ranges from 0.2 to 2 pips. If you want to zero on one economy specifically, the long break that exists between trading sessions is ideal for you. Your maximum daily potential profit will be reduced by 2.1% if you work with a broker whose spreads are, on average, 1 pip and have three digits for this pair.
This pair is unique because of the significant shifts that have occurred in the value of the British pound. When you combine this with high levels of liquidity, it results in low spreads that enable you to employ low-spread tactics that are inapplicable to other currency pairs.
If you keep up with the news in this day and age, you will be aware of the apparent decline of the British pound. This currency pair has variable spreads that range anywhere from 0.3 to 2.7 pips. Due to the high daily average range of the GBP/USD pair (68 pips), the spread of 1.4 pips will eat into your maximum possible profit by around 2.0% for every transaction. This is a lesser percentage than what you would lose trading the USD/JPY pair.
The Swiss franc has an inflation rate that is extremely near to zero, and the country's financial system is often recognized as being among the most robust. No wonder the USD/CHF has a relatively low spread and is one of the most actively traded currency pairs on the forex market.
Although one of the characteristics of the Swiss Franc is its consistency, this does not imply that there are no prospects for financial trading. It is a currency pair that is simple to understand and has minimal spreads that can run anywhere from 0.5 to 5 pips. The daily average range has a spread-to-profit ratio of 2.6%, which comes out to 1.2 points per pip (45 pips).
This currency pair is more volatile than others and is more susceptible to changes due to its cross nature. Due to that particular reason, one may anticipate more significant shifts in the market during any given incident.
Although the spread may not be the lowest that is currently available, EUR/JPY is still favorable enough for traders that engage in regular transactions. It has an ideal balance of a modest spread and plenty of opportunities.
This is evidenced by the average daily range (ADR) of 63 pips, the spread range of 0.5 to 5.7 pips, and the average daily spread of 1.2 pips, all of which correspond to a possible profit ratio of 1.9%. Another reason why this currency pair is so intriguing is because it rarely engages in sideways or range movement.
All in all, there is no right or wrong currency pair when forex trading. Depending on your trading strategy, one pair might be more better suited than another. Remember to experiment in a demo account with different low-spread pairs before choosing your favorite one to trade in the forex market.