Which instruments and markets are best suited for beginner traders?

Selecting the right instruments can simplify your trading journey initially and help you grasp the fundamentals step by step. Let's delve into that.

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EUR/USD

EUR/USD, also known as “fibre,” is a top pick for Forex traders worldwide. It’s a popular choice because it involves trading the US dollar against the euro, two major currencies. This means there’s always a lot of action happening with EUR/USD, making it easy to trade anytime you want.

One of the great things about trading EUR/USD is that there’s a wealth of information available to help you make smart decisions. For instance, if there’s good news about the US job market, it usually makes the dollar stronger. You can stay updated on these events using an economic calendar. So for example, look for the non-farm payrolls report, released on the first Friday of every month, which can have a big impact on EUR/USD.

But trading isn’t just about keeping an eye on reports. You can also use charts and other tools to figure out the best times to buy or sell. EUR/USD tends to move in a more predictable way compared to some other pairs, which makes it appealing to traders who prefer technical analysis. By combining information from reports with chart analysis, you can see why so many traders favor EUR/USD.

Advantages:

  • High liquidity
  • Good response to fundamentals
  • Suitable for both technical and fundamental trading

Disadvantages:

  • High competition (EUR/USD is also traded by “big players” in the form of institutions and hedge funds, they may have access to more advanced tools and data and thus may have the upper hand)
  • Need to be constantly alert and monitor fundamentals

In addition to EUR/USD, other major currency pairs with the dollar are also suitable for beginners:

  • GBP/USD
  • AUD/USD
  • USD/JPY

EUR/GBP

If you’re keen on trading Forex but aren’t a fan of wild price swings, you might want to check out the EUR/GBP currency pair, also known as the “chunnel” among traders. This pair tends to be less volatile compared to others like EUR/USD, making it a more stable option. This could be particularly attractive for traders looking to minimize risk or focus on longer-term trades.

Because both the euro and the British pound are from Europe, they tend to see the most trading activity around the same time, unlike some other pairs. This means there’s less chance of being caught off guard by sudden moves if you’re holding positions overnight, which is good news for swing traders.

On top of that, EUR/GBP tends to react well to economic news from both the Eurozone and the UK. This makes it a solid choice for swing traders who prefer to avoid the stress of big price swings. Like other currency pairs involving the US dollar, factors like the labour market can heavily influence the Pound and Euro. For instance, in times of high inflation, unexpectedly high unemployment rates can weaken the domestic currency, potentially leading to interest rate cuts by the central bank.

Advantages:

  • High stability
  • Suitable pair for swing trading

Disadvantages:

  • Fewer trading opportunities for intraday trading
  • Lower volatility

S&P 500 stock index

Also known as the Standard & Poor’s 500, is a stock index comprising the 500 largest US companies listed on the stock exchanges. As a result, it serves as a gauge of the overall health of the US economy, making it simpler to understand compared to currency pairs, which involve the economies of two countries.

Trading the S&P 500 offers several advantages. One key benefit is risk diversification since it spreads risk across 500 different companies, making it less susceptible to sudden market movements compared to trading individual stocks. Additionally, the index boasts high liquidity, meaning trades are likely to be executed at the expected price, albeit with occasional exceptions. While stock indices can be volatile, the S&P 500 tends to be relatively stable compared to others like the NASDAQ or DAX, reducing the risk of unexpected price swings.

Access to data for analyzing the S&P 500 is abundant, with news outlets worldwide frequently reporting on its performance. This ensures traders always have ample information at their disposal. During volatile periods, monitoring speeches by Federal Reserve members and key inflation reports, such as CPI, PPI, and PCE, can provide valuable insights into market trends.

Despite its fundamental appeal, the S&P 500 can also be traded using technical analysis and price action due to its high liquidity, allowing for the identification of various price patterns.

Advantages:

  • Ideal entry-level stock index
  • Medium volatility and high liquidity
  • Can be traded both fundamentally and technically

Disadvantages:

Need to track fundamentals, but also geopolitics and global markets overall

Gold

Gold is among the most popular and easily understood trading assets, sought after by traders worldwide. Renowned for its high liquidity and volatility, trading gold offers abundant opportunities for profit. Moreover, it is often viewed as a “safe haven” investment during periods of geopolitical uncertainty, leading to increased investor demand.

One notable aspect of gold trading is its correlation with the US dollar. Typically, when the dollar strengthens, gold prices tend to decrease, and conversely, when the dollar weakens, gold prices rise. Recognizing and leveraging this correlation can enhance your trading strategies.

If you want to be profitable, it’s essential to know what instruments and indices to watch when trading gold, which is a topic we discussed in detail in our other blog article. Exploring these resources can provide valuable insights and help inform your trading decisions. If you’re interested in trading gold, we recommend checking out our article for further guidance.

Advantages:

  • High liquidity
  • Correlation with other instruments

Disadvantages:

  • High volatility
  • Need to monitor geopolitical events and fundamentals

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