What trading instruments are suitable for beginners?

Entering the world of trading is an exciting challenge for beginners. Who wouldn’t love the prospect of leaving the current day job to pursue full-time trading carreer and make money from any place with a stable internet connection, right?

But the truth is that not everyone will succeed because trading in the financial markets is not easy and there are many pitfalls awaiting the beginner. However, with the right tools and information, you can increase your chances of success. In this article, we will discuss which trading instruments, markets, and techniques are more suitable for you if you are new to trading and what you should avoid.

Trading instruments and markets that might be suitable for beginners:

Majors currency pairs

These pairs are generally regarded as the best choice for beginners. They include the world's major currencies traded against the US dollar. These pairs have high liquidity, which means you can enter and exit trades quickly and easily. Due to the high trading volume, there are also lower spreads on these pairs.

Majors include:

• EUR/USD

• GBP/USD

• AUD/USD

• USD/JPY and others

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Pro Trader tip: The US dollar is the world's No. 1 currency and is therefore tied to the global economy more than any other currency. In short, that means there is always plenty of information to base your trades on. The dollar is also a safe haven, which means that investors' money flows to it during periods of uncertainty in the markets. The price of the dollar can rise, for example, during periods of significant geopolitical instability.

Currency pairs with low volatility

In this group we could include some cross currency pairs that do not include the US dollar but are still considered relatively stable. These pairs tend to move more slowly but can still offer good opportunities. Lower volatility means lower risk, which puts less demands on the trader's psyche, so for this reason these pairs are also suitable for beginners.

These include:

• EUR/GBP

• AUD/NZD

​Currency pairs with clear fundamentals

Pairs whose exchange rate is influenced by clear and observable economic events, such as interest rate decisions, employment reports, inflation or economic growth, can provide more predictable movements.
 

Pairs with a clear trend structure

Finding currency pairs that show a clear trend can be useful for beginners, as trend strategies are usually easier to identify and tend to be more profitable. Beginners should trade in the direction of the identified trend, these trades have a higher probability of success than counter-trend trades.

It is recommended to look for trends on a higher time frames (weekly or daily). You can use our Purple Strike trend indicator.
 

Specific commodities

Gold can also be a suitable instrument for beginners. It is characterized by having an inverse correlation with the US dollar. Typically when the dollar strengthens, gold tends to weaken and vice versa. At the same time, it still offers acceptable spreads. However, slightly higher volatility, that tends to be on gold, can be a bit risky for beginners. That’s why it’s often advised to trade gold in smaller positions Remember that less is more in this case.
 

S&P 500 stock index

When it comes to stock indices, the S&P 500 index might be a good one for beginners. This index tends to have a lower volatility than, for example, the NASDAQ, while at the same time there is typically a strong correlation between the two indices, which can also be used to your advantage.

 

Pro Trader tip: The S&P 500 index tends to be inversely correlated with the VIX index. If the VIX index is falling, chances are the S&P 500 will rise and vice versa. You can find the VIX index as a futures instrument in our trading platforms and use it to analyze the S&P 500.

What new traders should watch out for:

Exotic currency pairs

Exotic pairs include currencies from less developed countries. These pairs can be extremely volatile and offer wide spreads, which increases the cost of trading them. Because there tends to be less liquidity on these pairs, there can also be delays in execution.

Exotic currency pairs include:

• USD/SGD

• USD/HKD

• EUR/TRY

High volatility pairs

Although some traders like volatility because of the potential for quick and high profits, without a deep understanding of the market, fundamentals, proper risk management, and control over one's own psyche, trading high volatility pairs can be risky. Examples of these pairs include GBP/JPY. Not for nothing is this pair called the "widow maker".
 

Highly volatile stock indices

For example, the DAX or the US 100 are extremely volatile at market open, which makes estimating the future direction difficult. This volatility is exploited by experienced traders for quick, scalping trades that sometimes last only a few seconds. However, scalping is not very suitable for beginners due to the demands on the trader's psyche.

Trading with high leverage

Financial leverage allows you to trade larger volumes than your account balance allows you to. This can increase profits, which is an appealing idea for a beginner. But at the same time, it also multiplies losses. Therefore, beginners should be very careful when using leverage, as it can quickly lead to significant financial losses. More important than leverage is monitoring proper risk management, i.e. how much position a trader wants to risk per trade.
 

Complicated trading strategies

If you are new to Forex, you should avoid complicated trading strategies on minute time frames. Scalping and intraday strategies require a deeper understanding of the market context and extensive experience. We therefore recommend starting with simple strategies on higher time frames. The general rule is to choose a swing strategy and trade positions that last for several days. From this position, then learn to observe the markets and gradually move to lower time frames and more complex procedures.

More useful tips for beginners

Get started on a demo account

Demo accounts allow you to gain experience trading Forex without the risk of losing real money. The demo will teach you how to use the platform and should be used to test your strategy. However, to get the most out of a demo, you need to approach it in the same way you would on a real account.

The big disadvantage of the demo is that you won't experience the emotions that are part of the real trading. You always need to keep that in mind. You also need to know that there are some limitations on the demo, for example there are no slippages on execution like there are on a real account. You need to take this into account when backtesting your chosen strategy and avoid transactions where these limitations play a role.

Switching to a real account

Many newcomers make the mistake of switching to a live account too quickly, without even having a proper trading strategy. However, the combination of the uncertainty stemming from an untested strategy and the uncontrolled emotions such as fear and greed always lead to losses. In the ideal scenario, you should have a tested trading strategy that is tested in a demo environment, and only then open a real trading account.

Once you have a real account, you should start with smaller positions (ideally micro lots). Remember that the emotions on the real account will almost certainly surprise you. It is also true that emotions are much less intense in a small account than in a larger account.