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What forex pairs in watchlist?

Forex pairs are the backbone of the foreign exchange market. As a beginner trader, it can be overwhelming to figure out which currency pairs to trade. One way to make this process easier is by creating a watchlist of forex pairs. In this article, we will explore what forex pairs are, why they are important, and how to choose which currency pairs to add to your watchlist.

What are forex pairs?

Forex pairs are financial instruments that consist of two currencies. The first currency is called the base currency, while the second currency is called the quote currency. For example, the EUR/USD currency pair consists of the euro (base currency) and the US dollar (quote currency). The exchange rate of the currency pair indicates the amount of quote currency needed to buy one unit of the base currency.

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Why are forex pairs important?

Forex pairs are important because they allow traders to speculate on the movements of different currencies. Traders can profit from the changes in exchange rates by buying or selling currency pairs. Additionally, forex pairs are used for hedging purposes. For example, a company that has operations in multiple countries can use forex pairs to manage its foreign exchange risk.

How to choose forex pairs for your watchlist?

Choosing forex pairs for your watchlist is a crucial part of your trading strategy. Here are some factors to consider when selecting forex pairs:

1. Trading hours: Forex markets are open 24 hours a day, five days a week. However, liquidity and volatility can vary depending on the trading hours of different currency pairs. Therefore, it is essential to choose currency pairs that are active during your trading hours.

2. Market sentiment: Forex markets are influenced by various factors such as economic data releases, geopolitical events, and central bank announcements. Therefore, it is important to keep track of the market sentiment towards different currency pairs. You can use technical and fundamental analysis to gauge market sentiment.

3. Volatility: Volatility refers to the degree of price movement of a currency pair. High volatility can lead to bigger profits or losses, depending on your trading strategy. Therefore, it is important to choose currency pairs that match your risk tolerance.

4. Spread: The spread is the difference between the bid and ask price of a currency pair. It is the main cost of trading forex. Therefore, it is essential to choose currency pairs with tight spreads to reduce trading costs.

5. Correlation: Correlation refers to the relationship between two currency pairs. Some currency pairs have a positive correlation, meaning they move in the same direction. Other currency pairs have a negative correlation, meaning they move in opposite directions. Therefore, it is important to choose currency pairs that are not highly correlated to diversify your portfolio.

Examples of forex pairs to add to your watchlist

Here are some examples of forex pairs that you can add to your watchlist:

1. EUR/USD: This is the most traded currency pair in the world. It is highly liquid and has a tight spread. Additionally, it is influenced by various economic data releases and central bank announcements.

2. USD/JPY: This currency pair is known for its high volatility. It is influenced by the performance of the US and Japanese economies, as well as geopolitical events.

3. GBP/USD: This currency pair is known for its high volatility and liquidity. It is influenced by Brexit developments, economic data releases, and central bank announcements.

4. AUD/USD: This currency pair is known for its positive correlation with commodity prices. It is influenced by the performance of the Australian economy and Chinese economic data releases.

Conclusion

In conclusion, forex pairs are the backbone of the foreign exchange market. Creating a watchlist of forex pairs is an essential part of your trading strategy. When choosing currency pairs for your watchlist, consider factors such as trading hours, market sentiment, volatility, spread, and correlation. By selecting the right currency pairs, you can increase your chances of success in the forex market.

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