Currency Trading – Forex tips you should know
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What is currency trading?
Currency trading is the most liquid and robust market in the world. In fact, no other market can compare to the sheer value of this massively traded market. Estimates peg the value of currency trading at around $5 trillion per day, a figure that far outstrips the value of all stock trading in the world. Currency trading / forex, is the largest market in the world that is almost 24/24 with the largest stock market volumes.
Read now the Best currencies/ Forex trading Guide for beginners in 2020!
There are many forex pairs to trade. For a beginner trader the question arises very quickly:
What are the best forex pairs to trade?
The answer is not so simple, because for each trader the best currency pairs to trade vary. A Japanese investor may prefer the yen, while a French investor will prefer the euro against the US dollar.
Whether you are a beginner or a confirmed trader, you often look for the most profitable currency pairs and you do not know where to start. And it is true that it is difficult to make one’s choice, but do not despair – there are some criteria to look for in choosing which currency to trade.
In this article we will look at what currency pairs are, what are the major, minor and exotic currencies, how to choose a currency pair for the trader and understand which currencies are the most volatile, the currencies with the spread the tightest and those with higher costs. You can also test the most profitable currency pairs by yourself on a forex demo account.
What are Currency trading Pairs?
All trading consists of the trading of different forex pairs: the currencies of the different countries are exchanges in real time.
When trading on the exchange rate, one must know which are the best currencies as investment. To find the most profitable currency pairs for you, you will need to find your forex strategy, carefully choose the pairs and define the best times to trade.
When you start trading Forex online, you may find yourself overwhelmed and confused by the large number of major currency pairs available in your MetaTrader 4 trading platform. If you look at the minor currency pairs, you still have some bread on Plate.
Trading on Forex – or currency trading – is the buying and selling of forex currency pairs. For the purchase and sale of currencies, you must have information on how many currencies in the pair are worth in terms of each other. This relationship is what defines a pair of currencies. A currency pair quotes abbreviations of two currencies followed by the value of the currency in the base currency.
There is an international code that specifies the configuration of forex pairs. For example, a quotation like 1.23 EURUSD means that one euro is worth $ 1.23. Here, the base currency is the euro and the opposite currency is the US dollar. Thus, each currency pair is listed in currency markets around the world. The price of one quotation gives the price of the first currency in the second. The name of the currency pairs comes from the first two letters of the country in question and the third letter is given by the letter of the currency. For example: USD – United States Dollar.
Want to know which currency pairs are most traded by traders? Smooth further:
The best currency trading pairs – The majors:
The major currency pairs:
- EURUSD (Euro – US Dollar)
- USDJPY (US Dollar – Japanese Yen)
- GBPUSD (British Pound – US Dollar)
- AUDUSD (Australian Dollar – US Dollar)
- USDCHF (US Dollar – Swiss Franc)
- USDCAD (US Dollar – Canadian Dollar)
The most important currency, as well as the most widely traded, is the US dollar. The reason for this is the size of the US economy, which is the world’s largest economy.
The US dollar is the currency that is the preferred benchmark in most forex trades around the world. It is the dominant reserve currency in the world.
The dollar is not necessarily one of the best currency pairs to trade, but it is the pair that has the most liquidity and is part of most major forex pairs
Currency trading exchange rate values
The prices of the forex pairs fluctuate in real time, as trading volumes between the two countries change every minute.
These pairs are naturally associated with countries that have financial power and countries with a high volume of trade conducted worldwide.
Generally, major pairs are more liquid and – consequently – less volatile, meaning that price fluctuations within the day may lower, since a large number of traders implies a harder-to-change consensus regarding the asset’s value.
Are minor currency pairs are the best currency?
The minor currency pairs:
- EURGBP – euro against the pound sterling
- EURCHF – euro against the Swiss franc
- EURCAD – euro against the Canadian dollar
- EURAUD – euro against the Australian dollar
- EURNZD – euro against the New Zealand dollar
- EURJPY – euro against the Japanese yen
- GBPJPY – British Pound against the Japanese Yen
- CHFJPY – Swiss franc against the Japanese yen
- CADJPY – Canadian dollar against the Japanese yen
- AUDJPY – Australian Dollar vs. Japanese Yen
- NZDJPY – New Zealand dollar against the Japanese yen
- GBPCHF – British Pound against Swiss Franc
- GBPAUD – British Pound vs. Australian Dollar
- GBPCAD – Pound Sterling versus the Canadian Dollar
With more than 200 countries in the world, you can find a handful of currency pairs for trading. If you want to know the currency symbols in circulation, see our article – Forex symbols.
All of these currency pairs do not have the potential to deliver the best results to traders.
Minor currency pairs are interesting to trade if you are a fundamental trader,, and you do a longer term analysis.
Scalping on minor currency pairs is more complicated to do because entry fees are higher than for major currency pairs. This does not mean that there are no more profitable currency pairs among minors.
The most volatile currency pairs can be profitable if one is well aware of risk management and an effective trading plan.
If you want to invest successfully currencies pairs in forex trading, you must have a better understanding of the pair you trade. If you choose any of the pairs, you go right into the wall.
Choosing the most profitable currency pair for you should be based on your knowledge, trading strategy and availability.
What minor currencies to trade?
The most profitable currency pairs among minors are those on which the interest rate differential is large.
The most profitable currency pairs on long-term strategies or interest rate differential strategies are the Australian dollar, the Japanese yen or the Canadian dollar.
It is interesting to set up differential interest rate strategies on currencies with significant inflation: the Polish zloty, the Turkish lira or the Romanian leu. Beware of brokerage fees, because minors can be the most profitable currency pairs, but spreads are among the most important.
For Example, If you have a job and you have to sleep at night, it is much more difficult to trade on the Asian session and currency pairs like the Japanese yen, or the Thai baht
How to analyze currencies ?
Let’s take a detailed look at EURUSD – This can be considered one of the most liquid currency pairs. In addition, this pair has the lowest spread, at most Forex and CFD brokers. This pair of currency is associated with a basic technical analysis.
The best thing about this pair of coins is that they are not too volatile. If you are not in a position to take a lot of risk, you can think of choosing it as your best pair to trade without worrying more than that.
You can also find a lot of information on this Forex pair, which can help you prevent yourself from making Forex beginner mistakes.
GBPUSD – Spreads and gaps contribute a lot to the popularity of this pair of currencies.
However, you must keep in mind that higher profits come with greater risk. It is a currency pair that can be grouped into the volatile category.
However, many traders prefer to choose it as their best currency pair to trade since they can find a lot of market analysis information.
USDJPY – this is another loved currency pair that can be seen in the world of forex trading.
It is usually associated with low spreads and you can usually follow a smooth trend when compared to other currency pairs. It also has the potential to deliver profitable opportunities for traders.
All major currency pairs that can be found at forex brokers with very competitive spreads.
However, this fact is not applicable for the GBPUSD because of its volatility.
It is always better to stay away from currencies that have large spreads.
The recommended extended by trading experts is 0-3 pips. When he overcomes 6 pips, the trading pair can become too expensive, which can lead you to bigger losses.
However, it does not mean that you should totally avoid anything that has high broadcasts.
Exotic currencies trading
Want to know if it’s worth trading exotic currency pairs? Here is the answer:
Here are some exotic currency pairs:
- EURTRY – Euro against the Turkish lira
- USDSEK – US Dollar against the Danish Krone
- USDNOK – US dollar against the Norwegian krone
- USDDKK – US Dollar against the Danish Krone
- USDZAR – US Dollar versus the South African Rand
- USDSGD – Dollar against the dollar Singapore
The most profitable currency pair is a currency pair that you know and are used to trading. Another important thing is to look at the correlation of currency pairs, especially when trading exotic currency pairs.
Correlation is important in currency trading, so do not hesitate to use the Correlation Trader to do your analysis.
Sometimes, on exotic currencies, you can have a correlation between forex and commodities, especially on emerging economies, big exporters of commodities.
The volatility of exotic currency pairs is much greater than for majors and minors. Exotic currencies are often currencies of countries less important in terms of size of their economy or pairs of emerging countries:
The Russian ruble, the Mexican pesos, the Brazilian real, the Romanian leu, etc.
What is important to note is that the best pair is the one you are most knowledgeable of. This can be extremely helpful for you to negotiate the currency of your own country.
AvaTrade currency pairs
|EUR-USD||Euro against US dollar|
|GBP-USD||Pound sterling against US dollar|
|USD-JPY||US dollar against Japanese Yen|
|EUR-JPY||Euro against Japanese Yen|
|AUD-USD||Australian Dollar against US dollar|
|EUR-CHF||Euro against Swiss franc|
|EUR-GBP||Euro against Pound sterling|
|USD-CAD||US dollar against Canadian dollar|
|USD-CHF||US dollar against Swiss franc|
|NZD-USD||New Zealand dollar against US dollar|
|AUD-JPY||Australian Dollar against Japanese Yen|
|GBP-JPY||Pound sterling against Japanese Yen|
|EUR-CAD||Euro against Canadian dollar|
|EUR-AUD||Euro against Australian dollar|
|AUD-CAD||Australian Dollar against Canadian dollar|
|AUD-CHF||Australian Dollar against Swiss franc|
|AUD-NZD||Australian Dollar against New Zealand dollar|
|CAD-CHF||Canadian dollar against Swiss franc|
|CAD-JPY||Canadian dollar against Japanese Yen|
|CHF-HUF||Swiss franc against Hungarian Forint|
|CHF-JPY||Swiss franc against Japanese Yen|
|EUR-DKK||Euro against Danish Krone|
|EUR-HUF||Euro against Hungarian Forint|
|EUR-NOK||Euro against Norwegian Krone|
|EUR-NZD||Euro against New Zealand dollar|
|EUR-PLN||Euro against Polish Zloty|
|EUR-RUB||Euro against Russian Ruble|
|EUR-SEK||Euro against Swedish Krona|
|EUR-TRY||Euro against Turkish Lira|
|EUR-ZAR||Euro against South African Rand|
|GBP-AUD||Pound sterling against Australian Dollar|
|GBP-CAD||Pound sterling against Canadian dollar|
|GBP-CHF||Pound sterling against Swiss franc|
|GBP-HUF||Pound sterling against Hungarian Forint|
|GBP-NZD||Pound sterling against New Zealand dollar|
|GBP-SEK||Pound sterling against Swedish Krona|
|GBP-SGD||Pound sterling against Singapore Dollar|
|NZD-CAD||New Zealand dollar against Canadian dollar|
|NZD-CHF||New Zealand dollar against Swiss franc|
|NZD-JPY||New Zealand dollar against Japanese Yen|
|USD-DKK||US dollar against Danish Krone|
|USD-HUF||US dollar against Hungarian Forint|
|USD-MXN||US dollar against Mexican Peso|
|USD-NOK||US dollar against Norwegian Krone|
|USD-PLN||US dollar against Polish Zloty|
|USD-RUB||US dollar against Russian Ruble|
|USD-SEK||US dollar against Swedish Krona|
|USD-SGD||US dollar against Singapore Dollar|
|USD-TRY||US dollar against Turkish Lira|
|USD-ZAR||US dollar against South African Rand|
|USD-ILS||US dollar against New Israeli Shekel|
|EUR-ILS||Euro against New Israeli Shekel|
|GBP-ILS||Pound sterling against New Israeli Shekel|
|USD-CLP||US dollar against Chilean Peso|
|USD-CNY||US dollar against Chinese Yuan|
It is often advisable to consider trading pairs that contain your local currency. In most cases, your local currency pair will be quoted against the US dollar so you should stay informed of this currency too.
The Best currency trading pairs – Conclusion on Currency trading
The dynamics of forex trading is an interesting one. As globalization becomes a big part for most countries around the world, the fate of these pairs is closely connected. Make sure you have done your homework when you trade on major currency pairs.
There are many forex pairs available for trading and it is important to trade the financial instrument demo to know it better before you get started in real life, simply because this kind of investment, with a leverage effect, is risky.
Identifying the best currency pair to trade is not easy. The best way to accomplish this is through field experience.
Simply open a demo account and start trading, doing technical analytics and fundamental event analysis.
If you want to put into practice what you read in this article, open a demo account at AvaTrade South Africa, and test for yourself which are the best currencies to trade.
Currency trading main FAQs
- What is the best currency trading strategy?
There is no best currency trading strategy. The strategy that works best will change based on the market or currency you’re trading, the timeframe you’re trading, and your own personality. Plus, what works this month might not work as well next month, so currency trading is ever changing. You should learn as many strategies as possible and focus on a single currency until you are an expert before spreading yourself too thin.
- How much money do I need to start with currency trading?
At AvaTrade South Africa you can get started on a career currency trading with as little as $100. That said, don’t expect to get rich overnight or even over years if you’re starting with such a small amount. To make large amounts of money in your trading you need to have large amounts to speculate with. Of course, only you know what you can afford to lose, and as they always say never risk more than you can afford to lose.
- What is the difference between currency trading and commodity trading?
The primary difference is that when trading commodities you are speculating on the price moves of physical items such as gold, wheat, cocoa, crude oil and others. Currency trading is speculating on the relative value of one country’s currency versus another. Because commodity trading deals with actual physical items some people feel more comfortable trading commodities, or understand what makes their prices move more easily than with the more abstract currency markets.