Foreign Exchange Currencies: The Best Pairs

Posted on March 7, 2010
Filed Under Debt | Leave a Comment

People starting out in forex trading frequently do not realize how many trading opportunities this gigantic market offers. It can seem overpowering to think that you can trade any combination of the planet’s currencies.  

Theoretically at least, a trader can deal in any pair: that is, any a couple of the 150 or so currencies of the world. Just about all states have their own currency excepting the european nations who are part of the Euro system and one or two small states who use the US dollar. There are other states whose currencies are fastened to the dollar to give them some economic stability. Still, there are plenty of currencies out there, and in mixture that makes a big number of forex pairs.

In practice of course there are boundaries on the currency pairs that an individual trader can access. Most brokers will only let you deal with certain pairs, or if they quote costs on unusual pairs then the spread will be high so you’ve got a higher threshold to beat before you start making money. If you want to trade in a minor currency it is often best to do so thru a broker who is based in that country.

For most traders this is not even an issue . The average foreign exchange retail trader ( that is, someone trading all alone account, frequently from home ) would not touch most minor currencies because they are too uncertain. For anyone starting out, actually the most suitable choice is to stay with the major currencies.

So which foreign exchange currencies would be portrayed as major? There may be some debate about this but most sources count seven major currencies ordered by their traded volume. They are: US dollar – USD, euro – EUR, Japanese yen – JPY, English pound – GBP, Swiss franc – CHF, Canadian dollar – CAD and Australian dollar – AUD.

Major pairs are defined as pairs of the US buck with any other major currency. This creates six major pairs which are EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD and AUD/USD. Pairs of 2 major currencies where neither one is the US dollar are called cross pairs. This gives another thirty possible pairs. An example would be GBP/CHF.

The most heavily traded pair of foreign exchange currencies is EUR/USD. The high liquidity of EUR/USD has three main benefits. First, you will not have difficulty getting matched including having stop losses matched at the upcoming point without a lot of slippage. 2nd, the spread is low because competition between brokers is intense for this pair. Third, there is a ton of forex reports relating to these 2 currencies and you are much less certain to miss some important statement.

With all these factors coming into play, the recommendation for newbies is to keep to one pair and make it the largest, EUR/USD. That is if you are trading for yourself. If you are using a robot, it may be set up for other foreign exchange currencies and you must go with the advised pairs.

Share and Enjoy:
  • Digg
  • Sphinn
  • del.icio.us
  • Facebook
  • Mixx
  • Google Bookmarks
If you enjoyed this post, make sure you subscribe to my RSS feed!

Comments

Leave a Reply