Thousands of beginner traders start by opening an account and depositing a small amount of capital to learn how to trade, see if it is for them, and, more importantly, not lose a lot of money. Let’s show you which are the best forex pairs to trade on a small account.
The best forex pairs to trade with a small account will be the three major forex pairs which are EUR/USD, USD/JPY, and USD/CHF. These forex pairs typically have low spreads, are not volatile, and are highly liquid, giving traders who open positions the best possible chance of a winning trade.
This article will explain the criteria you, as a trader with a small account, need to look for in the best forex pairs to trade that will potentially save you capital and give you a winning trade. You may think you know what they are, but understanding why these factors are important may surprise you.
Best forex pairs to trade with a small account
Essentially, the best forex pairs to trade with a small account would be currency pairs that have a low spread, are popular, and are not volatile (you can predict them to a certain degree). In essence, the major forex pairs are the ones that typically provide the benefits we mentioned.
Now there are many major forex pairs, and you can go read a detailed breakdown of them in this article we covered concerning the best forex pairs for beginners. However, even though many forex pairs can be considered to be major pairs, the consensus is that four are “leading the charge” as the most popular because these pairs account for about 85% of the whole foreign exchange market. They drive the entire forex market and are the most traded pairs. The four major forex pairs are;
- EUR/USD
- USD/JPY
- GBP/USD
- USD/CHF
However, the GBP/USD is the most volatile of the four, and trades placed on this currency pair are best for short-term aggressive positions. Therefore, regarding the best forex pairs to trade with small accounts, one of the criteria must be that they are not necessarily a volatile pair; we will exclude the GBP/USD.
If you are wondering why these criteria and, more specifically, these pairs are important or rather “the best,” it is because they give traders who are placing small positions the best possible chance to make a successful trade.
No trader wants to lose, and placing a position on a volatile pair that is not liquid and has a widespread will see you out of the position faster than the time you spent deciding to place it and opening it in the first place.
It will help if you understand that most individuals who start investing or learning to trade do so with small capital. Even though professionals say that you can start investing with as little as $500 to $1,000, this is typically not the case for most individuals just starting out.
Most people usually open an account, put in approximately $50 to $100, and then use that. This is due to various reasons and ones beyond this article’s scope. Suffice it to say that this scenario is so true that many brokers offer what is known as a Cent account.
What are cent accounts in forex?
Cent accounts are trading accounts that are opened and used in retail foreign exchange trading in cents instead of USD. There is typically no difference between normal accounts and Cent accounts except for the nominal amount, and all transactions take place in cents and are also displayed this way.
Understanding small forex accounts
Now that we know a little about small accounts and, more specifically, what type of conditions traders with these accounts would need to look for in terms of the best possible forex pairs to trade on them, let’s look at the criteria we established in more detail, and they are;
- Forex pairs that have a low spread
- Forex pairs that are not volatile
- Forex pairs that are “popular”
What is a spread in forex?
In its simplest term, a spread in forex refers to the difference in price between the selling price and buy price when trading currencies. The spread (difference in price) will be established by the broker you use and can vary dramatically from broker to broker and also depending on which currency pair you wish to trade (this will be discussed in the next section).
Other factors also affect the spread, like economic factors and time of day. A spread is also known as a bid/ask price where “bid” stands for sell and “ask” stands for buy.
How to calculate spread?
To calculate the spread in forex, you will need to determine the difference between the two prices (buy and sell price). To do this, you will essentially subtract the selling price (bid price) from the buy price (ask price).
It will help to remember that forex pairs are measured in pips, so the difference between these two prices will give you a value in pips and not a monetary value.
For example, if you are trading the EUR/USD at 1.3080/1.3085, the difference between those two “prices” will be 0.0005 giving you 5 pips.
Which forex pairs have a low spread?
Brokers will often say that the accounts they offer their clients have the lowest spread, and typically, if you are trading on a small account, you will want to trade on these types of accounts that brokers offer.
Moreover, we discussed the three major forex pairs that you would want to trade on small accounts because not only will brokers offer lower spreads for these currency pairs but due to the fact that these pairs are based on stable economies and are traded in high volume (very liquid) the spreads will be tight.
Here is a list of brokers with the lowest forex spreads;
- ZFX
- Pepperstone
- FP Markets
- AvaTrade
- IG
- FxPro
- Fusion Markets
- IC Markets
- Forex.com
- FXTM
- eToro
What is forex volatility?
Volatility essentially measures how big the waves (the upswings and downswings) are for any particular forex pair. When the price of a forex pair fluctuates dramatically and very often, it is considered volatile.
This is problematic because, typically, these types of currency pairs will be hard to predict, and furthermore, when they are so volatile, the spreads will widen. This means you will need to “pay more” to open up a position and will start at a large negative.
Thus day traders who are starting out and are getting a feel for trading and the markets using a small account will not want to open positions on currency pairs that are volatile because they will be difficult to predict and they will most likely have a widespread meaning it will cost more to open the position.
Luckily, the three major forex pairs that we listed (EUR/USD, USD/JPY, and USD/CHF) are not volatile, and the spreads are usually low.
Understanding forex pair liquidity
The last aspect a small account should consider in terms of which are the best forex pairs to trade is the element of the “most popular” forex pairs or, rather, a currency pairs liquidity.
Liquidity is essentially a forex pair’s ability to not change (in any drastic way) its exchange rate when being bought and sold (traded).
When a forex pair is said to be very liquid (have high liquidity), it is very easily bought and sold, and on top of that, there is a large amount of trading volume (trading activity/lots of buying and selling) that is taking place.
For example, the EUR/USD is considered the most “popular” major forex pair, accounts for 25% of the global forex volume, and has a turnover of more than $5 trillion daily.
This means it has high liquidity, is stable, and brokers will typically offer it to trade at a low spread. Essentially, if you have a small account, you will want to trade popular currency pairs (ones with high liquidity).
The best major forex pairs to trade for a small account
We have now established what you will need to look for in terms of criteria for forex pairs when you have a small account. We have also gone over the criteria in detail and linked the three major forex pairs that share these criteria. They are;
- EUR/USD
- USD/JPY
- USD/CHF
Remember that the GBP/USD is more volatile than the other three, so this currency pair can be ignored. These are the three forex pairs that you, a retail trader (day trader) who is new to forex trading, will want to trade and are considered major pairs. This is because they fulfill the criteria we set.
Going into detail about these specific currency pairs is a little beyond the scope of this article; however, I explain and go over these forex pairs in this article (the best forex pairs for beginners). Reading this article and that one will give you a solid foundation in understanding what steps you, as a beginner trader, should take and everything there is to know about these major forex pairs.
Conclusion
In conclusion, we now understand that if you have a small account, you will want to trade stable forex pairs with the highest chance of predictability. These forex pairs should have three criteria associated with them to make trading as “easy” as possible, and they are;
- Low spread
- Not volatile
- Highly liquid
The major forex pairs EUR/USD, USD/JPY, and USD/CHF have these criteria associated with them. Remember that there are others as well, but as a beginner and someone with a small account, these three will be the best.
FAQs
What are the easiest pairs to trade in forex?
The easiest forex pairs to trade will be the major forex pairs. This is because the economy for these pairs is stable, making them popular to trade (highly liquid). It also means that their spreads will be low, and usually, they will not be very volatile. They are they;
- EUR/USD
- USD/JPY
- GBP/USD
- USD/CHF
Can you trade forex with a small account?
You can trade forex with a small account. Some brokers even have accounts (called Cent accounts) specifically made for individuals who want to trade with a small account. Cent accounts offer the trader to place trades and view account details in cents rather than traditional USD or other currencies.
Essentially this means that there is much less risk.
Which forex pairs are best for trading?
The best forex pairs for trading are the major forex pairs. These pairs are stable, have low spreads, and are not volatile. They include;
- EUR/USD
- USD/JPY
- GBP/USD
- USD/CHF
- USD/CAD
- AUD/USD
- NZD/USD
You should avoid volatile emerging market currencies, exotic forex pairs, and minor forex pairs that don’t fulfill the conditions of a low spread, high liquidity, and stability.
