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Choosing the Right Currency Pair for Trading

Choosing the Right Currency Pair for Trading

The Forex trading plan’s vital part is to choose the right trade asset. The Forex market is one of the strongest financial markets, which practically operates 24 hours a day, from Sunday 5 pm EST to Friday 4 pm EST. Traders across the world engage in this market in buying and selling currency pairs in large numbers. As a result, the global financial space’s highest liquidity occupies in the Forex market. Globally 180 legal currencies exist, but only a tiny fraction of them represents the trading volume’s majority.

Right currency pair choosing in trade can be overwhelming. However, it is an essential fact for a trader who wants to meet their long-term financial goals. Every currency pair has its market movement and own trajectory. The pair’s characteristics fit a specific transaction strategy; otherwise, it may fail to create the desire results.

4 Major Currency Pairs

  • EUR/USD: In 2019, the EURO trading’s market share expanded to 32 percent, and US Dollar is the second. In combination with the mighty dollar, this pair offers a reliable option for a trader, and it has low volatility—moreover, the weakest spreads associated with this pair.
  • GBP/USD: It was considered the most robust currency pair in the past, but these duos have become highly volatile since 2016’s Brexit referendum. Nevertheless, swing traders got a lot of opportunities because of their volatility. This currency pair is handy for traders looking for opportunities to make a significant gain—however, the higher growth is associated with, the higher risks.
  • USD/JPY: At board market sentiment, a sensitive pair is USD/JPY. It is known as a safe-haven currency pair. The price of this pair may increase, followed by the intense economic downturn and market volatility.
  • USD/CHF: Another safe-haven currency for the traders is Swiss France, and the reason behind this is that Switzerland adopts a politically neutral stance. During the economic uncertainty and geopolitical unrest, this pair value also tends to rise.

In recent years, the major currency pairs move to the long-term trend direction. As a result, new traders adopt a new strategy to deal with the exchange traded funds market. Always remember, you need to revise your trading strategy once in a while as it will help you to keep pace with the market.

At the time of significant pairs trading, a trader should compare the pair’s price to 3 or 6 months ago, whether it is lower or higher than the previous price. And after measuring the trend, a trader can trade in the overall trend’s same direction.

Volatile Pairs – High Gain Potential Associated with High Risks

High volatility currency pairs tend to exhibit lower trading volume or lower liquidity. Across the Forex pairs, the volatility levels differ. The minor currency duo, compared to others, tends to be more volatile. These minor pairs are traded less, and some may belong to vulnerable political and economic climates. Some examples are:

  • AUD/JPY
  • GBP/AUD
  • USD/TRY
  • AUD/CHF
  • CAD/JPY
  • AUD/CAD
  • NZD/JPY

Pairs are called crosses that do not contain the US Dollar. However, all the crosses are not minor currency pairs. In other words, all crosses are not minors, but all minors are crosses. Few currencies like Canadian Dollar (CAD), Australian Dollar (AUD), or New Zealand Dollar (NZD) are known as commodity currencies. These currencies have highly tied to commodities price fluctuations like iron ore, oil, wood, or more in which the respective countries are top-level exporters.

During the announcements of breaking news and economic data releases, currency volatility can spike also. Even in the case of significant currency duo’s, this can happen too. For instance, the GBP/USD pair become highly volatile because of the concerning news of Brexit development. For some time, a team may even move by more than its average volatility, and over the short term, it may reverse. Traders, through breakout trading, try to take advantage of this volatility.

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