In the forex market, currency pairs are the most commonly traded assets. A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. There are many currency pairs available for trading, but not all of them are suitable for every trader. In this article, we will discuss what pairs you should trade in forex.
Currency pairs can be divided into three categories: major, minor, and exotic. The major currency pairs are the most commonly traded pairs and include the US dollar, the euro, the Japanese yen, the British pound, the Swiss franc, the Canadian dollar, and the Australian dollar. The minor currency pairs are less commonly traded and include currencies such as the New Zealand dollar, the Singapore dollar, and the Hong Kong dollar. The exotic currency pairs are made up of less common currencies such as the Mexican peso, the Turkish lira, and the South African rand.
When deciding what pairs to trade in forex, there are several factors to consider, including liquidity, volatility, and trading hours. Liquidity refers to how easily a currency pair can be bought or sold without affecting the market price. The major currency pairs are the most liquid, which means they are easier to trade and have tighter spreads. This makes them an excellent choice for beginner traders, as they are less likely to experience slippage or other trading issues. Exotic currency pairs, on the other hand, have lower liquidity and wider spreads, making them more challenging to trade.
Volatility refers to the degree of price movement in a currency pair. The more volatile a pair is, the greater the potential for profit, but also the greater the risk. Major currency pairs are typically less volatile than minor and exotic pairs, making them a safer choice for traders who prefer lower risk. However, traders who are willing to take on more risk may find trading minor or exotic pairs to be more profitable.
Trading hours are another important factor to consider when deciding what pairs to trade. The forex market is open 24 hours a day, five days a week, but not all currency pairs are equally active during all trading sessions. The major currency pairs are generally active during the European and US trading sessions, while the minor and exotic pairs may be more active during the Asian trading session. Traders should choose currency pairs that are active during the hours they prefer to trade.
In addition to these factors, traders should also consider their trading strategy and goals when deciding what pairs to trade. For example, if a trader prefers to use technical analysis, they may choose to trade currency pairs that are highly responsive to technical indicators. Alternatively, if a trader prefers to use fundamental analysis, they may choose to trade currency pairs that are influenced by economic events and news releases.
In conclusion, when deciding what pairs to trade in forex, traders should consider liquidity, volatility, trading hours, and their trading strategy and goals. Major currency pairs are the most commonly traded and offer lower risk, while minor and exotic pairs may be more volatile and offer higher potential profits. Ultimately, traders should choose the currency pairs that best suit their individual trading style and risk tolerance.
