Is There Such a Thing As A Best Currency Pair Trade?

With so many different currency pairs available to trade in the Forex market how do we decide which is the best currency pair trade when we first start?

It will probably help if we start by breaking them down into three basic groups, this will help to get rid of some of the currency pairs straight away and make our decision a little easier to make.

Majors, Minors and Exotics.

Virtually all of the currency pairs we can Forex trade in belong to one of these three groups.

Majors.

 

The Major currency pairs are the ones which include the US dollar, or USD as it is known, in the pair. For example USD/EUR (Euro) or USD/GBP ( Great British Pound) and so on. These are the most traded pairs and therefore the currency pairs with the most market movement each trading day. As they are so active they also attract the smallest spreads which is important to us as traders and something I will explain in more detail later.

Minors.

 

The Minor Forex currency pairs, sometimes also called cross currency pairs, are the more widely known currencies apart from the USD. These would include EUR/GBP or GBP/CHF (Swiss Franc) EUR/AUD ( Australian Dollar) and so on. These currency pairs do not have as much trading action on a daily basis but are still worth looking at as there are some good profits to be made for the trader prepared to look into them fully. The spread on these pairs is usually larger than the Major pairs due to the decreased market movement.

Exotics.

The Exotic Forex currency pairs are formed from the currencies of emerging and smaller countries, in financial terms, such as Brazil, South Africa, Mexico and Korea for example. These currencies are not traded that heavily and are best avoided by all but the most experienced traders.

My advice to anyone just beginning to trade in the Forex markets would be to stick to working with 3 or 4 of the more active currency pairs until they have gained more experience. Indeed it is perfectly possible to make a very good income just from trading from a few of the Forex currency pairs exclusively.

What Is The Spread And Why So Important?

The spread is basically the way that your on line trading platform makes its profit.

Similar to the way you buy and sell currency for your annual vacation there is a difference between what you pay for your vacation money and what the actual current price is, that is the spread in trading terms.

To explain this lets take a look at the Forex prices as shown on IGIndex, my preferred trading platform, today as I write this:

GBP/USD spread with IGIndex is quoted as sell at 1.2379.1 and buy at 1.2480.0 a difference of 9 pips as we call them.

EUR/USD spread is currently sell at 10669.5 and buy at 10670.1 a difference of 6 pips.

EUR/GBP spread is now sell at 8620.9 and buy at 8621.8 again a difference of 9 pips.

The actual current price of whichever currency we are looking to trade will be in the middle of the price range shown above. The amount either side of that real price is the margin of profit which the trading platform makes on each trade.

So What? What Does That Mean To Me And My Trading?

What this means to us in real terms is that we need to build in that additional number of pips into our profit target calculations. If we are trading EUR/USD for instance then, once we open our trade, the market needs to move 3 pips in out chosen direction before we break even on the trade.

So if our profit target is 15 pips we would be looking for the market to move at least 18 pips in reality.

OK, So I Have Read All Of This. When Are You Going To Answer The Question?

Fair point!

Well, we have ruled out any currency pair classed as Exotic as best being left well alone so that has narrowed it down a little bit.

For the time being at least we will also stay clear of the Minor or cross currencies pairs, apart from EUR/GBP, so that just leaves us with the Major currency pairs to choose from, which if you remember are the pairs which all include the USD as one of the pair.

Out of these I would recommend leaving the main currency pair EUR/USD alone as a novice, especially when you are just starting out with trading.

So to finally answer the original question, the Forex currency pairs I would suggest looking into starting your Forex trading career with are the following:

Major pairs GBP/USD, AUD/USD, USD/CAD along with EUR/GBP from the Minor currency pairs.

By focusing on just these few currency pairs we will have more than enough to keep us busy for quite some time. Watch the markets as they progress, apply whichever analysis tools and strategies we choose to use and then start trading.

I understand that you may have to read this through a couple of times to really understand what I am trying to say but it will be worth it in the end.

As always, please comment or ask any questions and I will do my very best to answer them for you.

 

 

 

 

Filed under: Forex Basics

Like this post? Subscribe to my RSS feed and get loads more!