Currency Exchange Currencies: The Most Favorable Pairs
People starting out in foreign exchange trading often don’t realize how many trading opportunities this large market offers. It can appear overwhelming to suspect that you can trade any mixture of the world’s currencies.
Theoretically at least, a trader can deal in any pair: that is, any two of the 150 or so currencies of the Earth. Just about all countries have their own currency excepting the european countries who are part of the Euro system and some tiny countries who use the US dollar. There are other states whose currencies are pegged to the dollar to give them some economic stability. Still, there are plenty of currencies out there, and in combination that makes a big number of foreign exchange pairs.
In practice of course there are boundaries on the currency pairs that an individual trader can access. Most brokers will only let you deal with certain pairs, or if they quote costs on unusual pairs then the spread will be high so you’ve a higher threshold to beat before you start making money. If you need to trade in a minor currency it is usually best to do so thru a broker who is based in that country.
For most traders this is not even a problem. The average currency exchange retail trader ( that is, somebody trading on their lonesome account, frequently from home ) wouldn’t touch most minor currencies because they are too variable. For anyone starting out, certainly the best option is to stick with the major currencies.
So which currency exchange currencies would be portrayed as major? There may be some debate about this but most sources count seven major currencies in order of their traded volume. They’re: US dollar – USD, euro – EUR, Japanese yen – JPY, Brit pound – GBP, Swiss franc – CHF, Canadian dollar – CAD and Australian dollar – AUD.
Major pairs are outlined as pairs of the US dollar with any other major currency. This creates six major pairs which are EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD and AUD/USD. Pairs of two major currencies where neither one is the US dollar are called cross pairs. This gives another 30 possible pairs. An example would be GBP/CHF.
The most heavily traded pair of foreign exchange currencies is EUR/USD. The high liquidity of EUR/USD has 3 main advantages . First, you will not have trouble getting matched including having stop losses matched at the intended point without a large amount of slippage. 2nd, the spread has a tendency to be low because competition between brokers is intense for this pair. Third, there’s a ton of foreign exchange stories associated with these 2 currencies and you are much less likely to miss some important statement.
With all these factors coming into play, the recommendation for noobs is to keep to one pair and make it a largest, EUR/USD. That is if you are trading for yourself. If you are using a robot, it could be set up for other forex currencies and you need to go with the suggested pairs.
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