The importance of choosing the right currency pair cannot be undermined while you’re trading in the forex market. A trader (before he forays into the currency market) needs to conduct research on the currency pairs- the ones that they should avoid and the ones that they should select in order to bolster their chances of winning. Read on to discover.
The major currencies
GBP/USD, EUR/USD and USD/JPY are the three major currency pairs that the market has to offer you. One of the most obvious attributes to be noted here is that the US dollar features on one side of each of all these pairs. The US dollar remains one of the most traded currencies in the market. Traders, throughout the years have studied this currency as well.
Prudent traders will always advise you to stick to these major pairs- firstly, because they are the established pairs that have been studied at length by traders since years. The widely traded pairs generally inspire confidence among traders. They usually guarantee greater chances of profits than what the lesser traded currency pairs do.
There is a lot of information available about these currencies. As a new trader you can explore many Forex trading systems that can actually help you trade these pairs successfully. Additionally, the presence of the US dollars makes all the difference for these dollars as well. As the US dollar is placed in one of the sides, most of the trading activities take place during the New York trading hours. These are the busiest hours in the Forex market and this adds liquidity to these currency pairs.
The Less Common Currencies
Traders are advised against trading less common currency pairs since not much is known about them. Australian Dollar (AUD), Euro (EUR), Japanese Yen (JPY), Swiss Franc (CHF), Canadian Dollar (CAD) and the British Pound (GBP) are some of the most common currencies that you can pick and find out how they are performing against the US dollar.
Do not experiment with too many pairs
A trader should never work with more than two currency pairs in a single trading session. You are advised to experiment with more than one pair so that you don’t have to rely completely on your main pair (since it might fail). It is prudent on your part to have a back-up pair beside your main pair. However, don’t experiment with too many pairs at the beginning since that might leave you confused.
You should always check the ratings of the currency pair. Determine whether you would want to open a position and set all orders for your main pair.
Avoid currencies with wide spreads
You would always be advised to steer clear from the currencies having wide spreads since they are more volatile than currency pairs that have little difference between the bid and ask prices. A new trader is always advised against betting on volatile bids since it is harder for them to predict the movement of these pairs. For instance, GBP/USD is one of the most volatile pairs and meant only for the new traders who have been able to grasp the market better than that of their contemporaries. There are several indicators that help you track this currency easily but it definitely has quicker movement than that of USD/JPY and EUR/USD. EUR/USD is the most ideal pair for starters since they have the lowest spread in the market and are the least volatile. USD/JPY also has considerably low volatility.