Forex Basics Archives

Best Currency Pair Trade. Is There A Best Pair?

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.

 

 

 

 

How To Start Forex Trading. How Tough is it?

How To Start Forex Trading?

This is a question that I get asked fairly often. In reality the answer is that it can be as simple or as difficult as you want to make it.

The basics of trading Forex are pretty simple, you are looking at a chart showing the current relationship of one currency against another. All you have to do is decide which currency is stronger and whether that strength will move the market upwards or downwards.

 

How hard can that be?

Of course, Forex trading is not as easy as that, simple and easy do not always mean the same thing.

 

Essential Items Required To Start Trading Forex.

Before you get going with your trading activity you will need a few essentials. You will not be surprised to know that one of them will be money!

Although it is true that you can begin trading with an online trading platform for very little outlay, realistically to give yourself the best chance of success you are going to need at least $500 preferably nearer $1000. There are tools you can use to limit your exposure to sudden market changes and you should always have a limit on any potential losses before you place any trade.

You do however need a bank to begin with to allow you to trade with less stress and worry of running out of cash. One thing you do not need to be doing when trading is worrying.

You will also need a platform to trade on. There are many of these around some much better than others. I personally use IG Index but it would serve you to do a little research and find the one with which you feel most comfortable.

This online platform will allow you to open an account, subject to some checks of course, and provide you with more options to trade, or spread bet as it is officially called, than you will ever need. We are only interested at this time with trading the Forex market.

You now have access to the price charts within your online trading platform. These charts can range from time periods of seconds to days or months, you decide. Whichever time period you choose will be represented by one bar or candlestick. These move up and down reflecting the price movement as shown on the chart below.

 

Other Factors to Take Into Consideration.

This is the point where you as a trader can complicate matters a lot. There are a million and one bells and whistles which you can use to ” help” you with your trading decisions.

Do you use Fundamental Analysis, Technical Analysis, Volume Price Analysis, a mixture of them or none at all?

Do you follow trends? Take notice of Government announcements regarding interest rates, employment figures or another of the many factors which can affect the price movement?

Many of these tools are added to the charts, again to “help” you with your trading decisions. Look at the chart below to see how complicated things can soon begin to look to the inexperienced trader. Lines running all over the place with no apparent connection to the chart.

 

I hope that you are beginning to see how quickly the whole thought of trading could be overwhelming.

My suggestion is that when you first start you will need very few additional tools. You can choose one method of analysis to help your decision making.

Don’t Let All of This Put You Off Trading Forex.

Trading Forex can be a wonderful, exciting but sometimes frustrating experience. At times you will feel as if you can do no wrong, every decision seems to work out well and all of your hard work pays off. At other times you will definitely feel as if the market is picking on you personally and heading opposite to you on purpose out of spite.

You have to take the emotion out of your trading!

You cannot control how the market reacts. You can only control your decision making. Do your due diligence, use the tools and strategies which you understand on a consistent basis and trade with discipline not emotion and you will be rewarded many times over. Nobody gets it right every time and you should not expect to do so either.

As your experience grows you will learn tips and methods to take advantage when the market moves in your favour and how to limit your losses when it doesn’t.

This is not a get rich quick way to make money, more of a serious hobby which, when done properly can be very rewarding both financially and mentally.

So You Want To Start Trading Forex?

So You Want To Start Trading Forex?

So, you have heard all about the exciting world Forex trading and would like to find out more for yourself. Discover if it is something that you can get involved in and trust me, once you do start trading Forex there will be no going back, you will be hooked……………….in a good way of course!

Where to begin?

 

Forex is short for Foreign Exchange, the trading of world currencies against each other to establish the exchange rates between those currencies.

Why is it important?

Everything which we all buy is affected by these exchange rates from fuel to groceries and gifts for our loved ones. The most common example of this, which I am sure most of us have come across, is when we exchange currency for our overseas vacations. Indeed that is a very good example which we will discuss further later on.

Unlike the Stock Exchange we have all seen in the films, people on a trading floor answering phones and screaming at each other “Buy, Buy, Buy” or “Sell, Sell, Sell”, when you start trading Forex it will all be conducted on-line.

The basic reason for the existence of the Forex market is to set currency exchange rates which allow businesses and banks to trade easily without having to haggle over how much their national currency is worth against another at that particular point in time. As such it is probably the busiest, or most liquid of all the financial markets with billions of dollars being traded every day.

That is all very well I hear you say. How do we fit into all of this? How can we get involved and why?

A very good question.

From our point of view there are two  main differences between stocks and shares and Forex. Stocks and shares most often require a large financial outlay and a long term view whereas Forex requires a much smaller financial outlay and can be traded in periods from a few minutes, over the course of one day or for longer periods of days if you wish. The choice is yours.

Another aspect in our favour when we start trading Forex is the fact that it is a 24 hour market. The market opens at midnight on Sunday in Asia, UK takes over at around 8am and runs until the US market opens mid afternoon. This cycle continues until the US market closes late on Friday night.

This gives all of us wherever we are globally access to this exciting and potentially lucrative market.

I will finish this section by explaining the basics of how we actually get involved and place our trades.

We do this by holding an account with a spread betting platform. There are many of these out there, City Index, IG Index, ETX Capital and Spread EX to name but a few. These companies give traders the facility to trade at a reasonably low outlay on any number of currency pairs. The list is endless but most traders focus on just a couple. There are 7 major currency pairs and we will look at those at a later date.

To complete this part I will take you back to the currency exchange many of us do for our vacations which I mentioned earlier.

You will no doubt have noticed that we buy and sell our vacation money at different rates. It is this difference that the spread betting platforms use to make their profit. This allow us as Forex traders to have access to the markets at a very low outlay as the platforms make a small amount of money whether we win or lose our trade.

I will cover these points in more depth as we progress but there is no rush to learn all of this in one go.

I hope you found this information interesting, please feel free to ask questions or make a comment. I will reply as soon as possible.