Currency Exchange Currencies: The Most Favorable Pairs
People starting in foreign exchange trading regularly do not realize how many trading opportunities this large market offers. It can seem overpowering to think that you can trade any mixture of the planet's currencies.
Allegedly at least, a trader can deal in any pair: that is, any 2 of the 150 or so currencies of the planet. Almost all states have their own currency apart from the european nations who are a part of the Euro system and a few tiny states who use the US dollar. There are more countries whose currencies are attached to the buck to give them some economic stability. Still, there are a lot of currencies out there, and in combo that makes a massive 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 prices on bizarre pairs then the spread will be high so you have a higher threshold to beat before you start making money. If you want to trade in a minor currency it is typically best to do so thru a broker who is based in that country.
However, for most traders this is not even an issue . The average foreign exchange retail trader ( that is, somebody trading all alone account, regularly from home ) would not touch most minor currencies because they are too uncertain. For anybody starting, certainly the best choice is to stay with the major currencies.
So which foreign exchange currencies would be described as major? There may be some debate about this but most sources count 7 major currencies listed by their traded volume. They are: US dollar – USD, euro – EUR, Japanese yen – JPY, Brit 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 3 main advantages. First, you will not have trouble getting matched including having stop losses matched at the planned point without lots of slippage. Second, the spread is low because competition between brokers is intense for this pair. 3rd, there is a ton of foreign exchange stories relating to these 2 currencies and you are far less certain to miss some important statement.
With all of these factors coming into play, the advice for noobs is to keep to one pair and make it the biggest, EUR/USD. That is if you are trading for yourself. If you're using a robot, it could be set up for other foreign exchange currencies and you should go with the advised pairs.
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