There are many currency pairs, therefore any novice trader has to decide what currency pair to choose. Traditionally, the most popular currency pairs are EURUSD and GBPUSD, but with a great amount of available tools there is a wide range of choice.
Which are best currency pairs, and which are better to forget about?
Nobody will answer this in a direct and unambiguous way. Choosing a currency pair on forex it is possible to encounter a number of recommendations and entire novels on vast trading experience of every trader willing to share their observations. Choosing best currency pairs is an individual decision for any forex trader, no matter if he’s a veteran or a newbie. Currency pair choice depends on different factors.
Where to start?
First off, get more familiar with the instruments. Each pair is most active at a certain time. For EURUSD and GBPUSD this means work of the American, European and British economics. When it is yet night time in Europe, Asian traders begin their work, and the instruments show a lot of false signals. Activity period for the national banks of different currencies is the trading session.
It is possible to trade during the session time as well as when it is over. Trading time and currency pair choice depend on the strategy. More popular is trading during the session. Forecasts on currency pairs at forex can be useful at trading, but you should not trust them entirely, although it is worthy to take the opinion of the market analytics into consideration.
Volatility and exchange rates
This is as well one of the most specific peculiarities of different pairs. This term means the level of fluctuations of a certain pair within a certain time. That is, currency pair bounces, and these leaps can be of any size. Some pairs are fairly stable, but some other are consistently unstable. GBP/JPY and GBP/USD are pairs that are always in the lead in terms of fluctuations.
Once your strategy implies such fluctuations, these instruments can be used. EUR/CAD, EUR/AUD are characterized with higher composure, and GBP/CHF, EUR/USD and USD/JPY show practically no fluctuations. These are the pairs preferred by the traders’ majority. Practically ‘windless calm’ conditions are observed with in EUR/CHF and EUR/GBP.
A few pairs or just one?
This depends upon the strategy. It is possible to use yet a dozen instruments. Traders choosing one pair usually consider geographic data and work with main currency pairs. At the same time, relying on geography is unprofitable from an economic point of view.
Currency pairs can be classified as following
The main groups: those that comprise USD and currencies of the major stable countries. These are Canadian, Australian and New Zealand dollar, Euro, Swiss franc, British pound, Japanese yen.
Cross rates: here, on the contrary, USD is out. The most popular pairs of this category are those comprising Japanese yen. However, this is not recommended for the novice traders, as they can be quite unpredictable, and not in a positive sense of the word. It is important first to gain experience in technical forecasting.
Exotic pairs: these comprise USD and currencies of the countries unfamiliar to many people. It is difficult to make forecasts about them, their liquidity is not high, on the contrary to the spread.