There is no right or wrong strategy when it comes to trading with forex pairs, considering that they vary among investors due to different individual needs. For instance, if forex pairs with tight spreads are likely your choice of trade, this may not apply to others.
However, there are certain parameters that always come in handy when selecting pairs for your trading needs. Before discussing those factors though, let us recap the various types of currency pairs available for trading.
Types of Forex Pairs
Forex pairs are generally sectioned into three categories which differ in terms of the volatility they offer, seeing as some are considerably more volatile than others when compared.
Majors: If you intend to opt for the most traded pairs globally, then this is what you are looking for. Major currency pairs are popular around the globe and each pair has the US dollar on one side. The liquidity is considerable among major pairs. Therefore, you can always count on them for available trading choices. In addition, they also offer lower spreads with fewer brokerage costs.
Minors: These are still highly traded currency pairs, however, they do not include USD. Hence, if you intend to trade with popular currency pairs, excluding USD as one part of the pair, you might want to consider minors. The volume is considerably higher with these pairs and when compared to majors, the volatility is admittedly higher, but stable altogether.
Exotics: This currency pair, known as an exotic pair, includes one major currency that is coupled with another currency from a developing nation. Such as USD/HKD, EUR/TRY, and many others. The volumes are often lower and they offer very high volatility.
Factors to Consider When Choosing Forex Trading Pairs
By paying attention to some of the important factors, you can actually save yourself from bigger losses. Although predictions cannot guarantee high returns, one can still manage to play safely around volatile assets.
Currency Spreads
Tighter currency spreads have their own advantages and are highly popular among those who mostly care about spreads. You can connect less spread to high profit. In other words, the lesser the spread the higher the fluctuation in price, which in return provides better opportunities to make gains right away.
Trading Sessions
The higher the volume for trading, the greater the opportunity for completing a trade with a profit margin. Therefore, it is always advisable to select the trading sessions when the market has reached its peak. In other words, trading during active markets provide traders with higher profits. For those trading during Asian hours, you must choose the pairs that are active between 7 PM EST to 10 PM EST.
For instance, you may notice that there might not be much movement for currency pairs combining AUD/USD during this trading session. Therefore, if you wish to have the leverage of choosing any pair, regardless of the trading market opening time, trade after the London market opens. At this interval, you get movement for almost every currency pair.
Technical Indicators
Graphs and charts provide a better insight into the forex pairs that are trending currently. You may feel that volatility brings better opportunities for higher gains, however, it increases the chances for higher losses as well. Hence, most traders consider technical analyses as a way of better predicting the market.
In addition, you may not expect certain pairs, that are usually assumed to show a negative correlation, to possibly trend better than those that have showcased better results in the past. Therefore, it is always advisable to stay tuned with the current trends.
Conclusion Trading with Forex pairs is highly beneficial, if you know which ones to choose. If you happen to be a beginner, you need to check all the factors that come into play when deciding on the best pairs. The parameters mentioned above are meant to give you a head start. As you continue to trade, you will learn more about choosing th
