Forex, being the global currency market, is fraught with currencies from different countries. In the Forex market, each of these currencies is paired off against each other: as a base currency and a counter currency. For instance, in the pairing of EURO-USD, EURO is the base currency and USD is the counter currency. The fundamental of FX market trading is based on buying of the Base price and selling of the counter price. Another way to understand this is, we buy the stronger currency and sell the weaker currency.
The Forex market has three categories of currencies that are traded:
- Majors: Any currency pairing with USD is referred to as majors. Almost 85% of the FX market trades in major pairs.
- Crosses: Currency pairings are made up of other important currencies pairs without the USD. In most of the crosses, Euro remains a constant feature, although it is not essential.
- Exotic: These are pairings of the major currencies with the newly emerging currencies, like the Zambian currencies or the Singapore currency/dollar.
The Majors are the most traded currencies and therefore has a high volume of trade in the Forex market. The most preferred and therefore the biggest pairs of amongst the majors are :
- EURO / USD
- GBP / USD
- USD / JPY
- AUS / USD
- USD / CHF
These pairs have the maximum transaction values. They are also the most frequently traded pairs. A
good way to get an hang about these currency pairs in the market to attend one of the reliable Forex
trading training for beginners courses.
How to choose the best Forex currency:
A limited trading List:
The FX market is ever evolving and moving. Unless a trader has time in hand to constantly monitor world events that will affect the currency market, contemplating on dealing with all of the pairings is not advisable. In fact, even for a full-time trader, monitoring the whole universe of pairs in the FX market in totality is impossible. Dubai based Forex expert, Kishore M says, “Limit your choice list. Stick to your strategy and play well. Spreading out the list to be all-inclusive will just not serve any purpose. It will only add to your anxiety, which will make you lose focus”.
Look for the trending pairs:
Markets never rest. When a trader opens his trades in the morning, he would search to see which pairs are trending for the day. A trending pair would mean an upward movement for that pair. However, for an FX trader, it is not the day wise trending that will matter. For investing in a pair, a trader will look for the trends that a pair has been displaying for the past few months. Bet on the trending pair. Make a note of the pairs which have stayed stagnant for a month. This will help traders make strategies which will optimize their profit-making opportunities. For new traders one of the best ways to learn out about such trending pairs, initially, is at the trading introduction courses for beginners.
Understand why currency pairs have to sync with the trading strategy:
Every trader has a strategy in place. This could be a strategy where he wants to deal only with major pairs or it could be a strategy wherein his focus is on the trending pairs. Depending on his strategy, a trader should be able to pick up his trading pairs. For instance, for a strategy that optimizes on making profits from trending pairs, the trader must choose a trending pair to trade with. Likewise, if he is planning on treading the less traveled way, and is betting on Crosses, he must pick up the Crosses wisely.
Pairing up the right way:
The basics of the Forex market is about buying/ selling and exchanging of one currency against another, in pairs. The speculation is always for the base currency to be strong and the counter currency to be weak. Hence, pairing up currencies likewise is the essence.
Keep the charts in-sight:
As reiterated, time and again, Forex is a speculative market. Situations can change in the blink of an eye. For serious traders, it is, therefore, vital for the traders to keep an eye on the charts. Charts are tools that will alert a trader for resistance levels, support levels and positions for entry and exit. These will altogether help to choose a currency pair that shows the maximum potential of earning profits.
Currency pairs that do not kill the volatility factor:
Choosing the best Forex currency for trading does not mean a narrowed down choice to one pair. It simply implies that the range of choices should be within the probable winning pairs. However, precautions that need to be taken here is about the currencies in the pairs. This is due to the fact that any movement in that one common currency, will reflect a change in the price movement of the other currency pairings also (since both the pairs contain the currency). For instance, a movement in the USD will show fluctuations in the UDS/JPY paring as well as in EURO/USD. The bottom line is, with the pairs containing the same currency, the volatility quotient of the pairs becomes nil.
Being updated on world events and following trends is fundamental to making the right choices in the FX market. If currency pairing is the game plan in Forex, then choosing the winning pair will be the winning secret of winning that game.