When you open a position you're trying to predict how the price will behave according to the strength of a currency pair over the other. If you decide to open a buy position is called "going long" and the goal is to increase the price to close the position later with a sale and collect benefits. Unlike other investment products in which you acquire ownership of the instrument that you are investing and therefore only earn money if its value increases and sell it more expensive than when you bought it in Forex can also trade in the opposite direction , ie you can open a sell position if you think the price will go down, it is called "going short" to close later with a purchase and reap the benefits.
What are the most popular currency pairs in Forex?
The four major pairs in the Forex market are:
EUR / USD (Euro vs. United States Dollar)
GBP / USD (British Pound vs US Dollar)
USD / JPY (US Dollar vs Japanese Yen)
USD / CHF (US Dollar vs Swiss Franc)
The most popular currency pair globally is the EUR / USD and is also having a higher volume of transactions. It is estimated that approximately 70% of forex transactions worldwide are made with this pair. It therefore has the greatest liquidity and refers to the two most important currencies currently in circulation worldwide. Therefore, not only it is negotiated by retail traders but also by large banks, financial institutions.
The other 3 higher before the EUR / USD pair also have a large volume of operations and liquidity.
There are other couples who are usually very attractive and popular professional traders such as:
GBP / JPY (British Pound vs. Japanese Yen)
EUR / JPY (Euro vs. Japanese Yen)
They are treated volatile and high torque which can obtain significant benefits from the wide swings in prices, but also pose a higher risk something if you are a beginner.
Then in terms trading volume, we have other pairs that are the result of crosses of the major currencies that we mentioned earlier (USD, EUR, GBP, JPY and CHF) with other major currencies (eg AUD Australian dollar CAD Canadian dollar or New Zealand dollar NZD). Examples:
USD / CAD (US Dollar Canadian Dollar Vs)
EUR / GBP (Euro vs British Pound)
EUR / AUD (Australian Dollar Vs Euro)
EUR / CHF (Euro Swiss Franc Vs)
EUR / CAD (Canadian Dollar Vs Euro)
GBP / CHF (Pound vs Swiss Franc)
GBP / AUD (Australian Dollar Vs British Pound)
GBP / CAD (Canadian Dollar British Pound Vs)
CHF / JPY (Japanese Yen Swiss Franc Vs)
AUD / USD (Australian Dollar US Dollar Vs)
AUD / CAD (Canadian Dollar Australian Dollar Vs)
AUD / CHF (Swiss Franc Australian Dollar Vs)
AUD / JPY (Australian Dollar Vs Japanese Yen)
CAD / JPY (Japanese Yen Canadian Dollar Vs)
CAD / CHF (Swiss Franc Canadian Dollar Vs)
NZD / JPY (New Zealand Dollar Vs Japanese Yen)
NZD / USD (New Zealand Dollar US Dollar Vs)
NZD / CHF (New Zealand Dollar Swiss Franc Vs)
NZD / CAD (Dollar Canadian Dollar Vs New Zealand)
Finally we have the exotic currency pairs that have a trading volume lower than those mentioned so far and a much higher volatility with consequent increased risk to predict their behavior. Among these pairs crossings with less frequent or emerging currencies such as RUB (Russian ruble), MXN (Mexican pesos), SEK (Swedish krona), NOK (Norwegian krone), DKK (Danish krone), HUF (they found Hungarian forint), ZAR (South African rand), PLN (Polish zloty) TRY (Turkish lira), BRL (Brazilian real), SGD (Singapore dollar), ...
What are the best pairs for trading in Forex?
Especially if you are a novice trader, the best pairs for trading in Forex are usually those with greater liquidity and trading volume. They are mainly for 2 main reasons:
1. These pairs, such as EUR / USD, generally have a lower volatility and therefore involve potentially lower the risk operate on them. Usually in these pairs will you be able to place your stop loss closer to the entry point that pairs with higher volatility that may have more abrupt movements and thus force you to place your stop loss further by taking on more risk or directly by skipping the stop loss when a loss could soon turn around in your
The major pairs, say in quotes that may be more predictable to be influenced by the situation of the major economies worldwide and therefore can keep more easily aware of the situation of the European and American markets than other economies of size less . You can rely on fundamental analysis (analysis of news and economic and political situation) to predict the behavior of prices in the medium to long term and technical analysis (analysis of graphs on prices has been taking the pair) to operate in shorter periods of time (weeks, days, hours or even minutes).
2. The other reason is that these pairs with larger trading volumes are much lower than the rest spreads. The spread is the difference between the purchase price and the selling price as the online broker commission applies. While it is common for major pairs have a lower spread 3 pips (even in some cases below 1 pip), in the case of minors or exotic pairs these spreads are much higher surpassing in many cases 15 or 20 pips. Whenever we open a position we'll start in negative due to this differential and certainly is much easier to recover 1 or 3 pips to 15 or 20. This added to the high volatility of the most exotic pairs make them undesirable for traders with less experience.
What other issues should I consider when making trading Forex?
- There are some traders who choose to operate only in a particular currency pair studying in depth and try to know well. This is a personal decision but in my opinion not see much sense to be limited to a single pair and ignore the opportunities that present themselves in others. Your goal should be to get to have your own trading system that is cost effective and consistent. Detect configurations strong trade and ignore those that are not and may be at increased risk.
These strong configurations may occur more or less frequently in each pair and if you focus on a single pair could spend extended periods of time without opening position. Often this creates some anxiety and can make you see strong configurations that are not difficult as it is kept waiting because if you do not open positions not going to get benefits or experience that gives practice. But open positions precipitously and impulsive can end quickly with the balance of your account. In the balance is the key and open positions only following your trading system, isolating yourself from your emotions.
- Not all times are optimal for trading. There are times of the day that have more trading volume than others and therefore more volatile. For example during the weekend trading volume it is often scarce and unreliable. To learn more you can have a look at our article Schedule Investing in Forex.
It is also advisable to have on hand an economic calendar to keep track of the most important economic news that could affect the currency pairs that are negotiating. If you use fundamental analysis you can rely on the news to try to get benefits, but if you use technical analysis, an important news can promptly increase volatility and lead to ruin your strategy, blowing your stop loss ... but sometimes you could also go in your favor.
- There is some correlation between various currency pairs Forex market (see more in depth in a later article). This means that some of the major pairs are positively correlated in their price movement and therefore often tend to move in the same direction most of the time and there are other pairs negatively correlated whose prices often move inversely to most of the weather. For example, two are positively correlated pairs EUR / USD and GBP / USD which usually have a similar trend direction.
You must be careful when opening positions that are correclacionados pairs as you are increasing the risk. If the price moves in your favor can bring you more benefits but if it goes against you losses will be greater. In these cases, if you spot a trading opportunity in correlated pairs it is to open your position where you have the most definite and strong signal.
- Your goal to become a profitable trader must be to have your own trading system that allows you to identify good trading opportunities while you manage adequately your level of risk. This is achieved with practice and experience. You can check internet thousands of different trading strategies you can try and analyze but ultimately about your have your own strategy that you feel comfortable, that you go debugged and confidence.
Often the best strategies are the simplest. Any complex system will be much more difficult to understand, follow and run properly. As you begin to learn technical analysis most people begin to try many indicators and to use them at once, without much discretion, to try to have more information but often you can get the messages are contradictory and confusing.