What Is The Best Currency Pair To Trade? Forex Pairs
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Forex pairs are always involved in currency trading. The pair is the two currencies involved in your trade. For example if you are exchanging US dollars for Swiss francs, the currency pair is USD/CHF.
Trading is limited in most cases to the currencies of the larger financial powers, though theoretically you could trade any two currencies of the world. This does not mean necessarily the most powerful politically or the biggest countries. Because of the global importance of the Swiss banks, Switzerland for example a small country, is a major player in the financial markets.
There are 6 major forex pairs which between them account for 90% of the funds traded on the forex markets. These are:
- USD/EUR: the US dollar and the euro
- GBP/USD: the British pound and US dollar, nicknamed Cable because it used to be synchronized on both sides of the Atlantic by a cable running under the ocean.
- JPY/USD: the Japanese yen and the US dollar.
- CHF/USD: the Swiss franc and the US dollar.
the Australian dollar and US dollar: AUD/USD
- CAD/USD: the Canadian dollar and US dollar
In the beginning it is best to stick with the majors. But some traders do get involved in other combinations of these major currencies or pairs that include other currencies such as the New Zealand dollar.
The US dollar is the most significant single currency and is involved in 85% of trades according to a 2007 study. The euro is second at 37%. Next come the yen, pound, Swiss franc, AUD and CAD in that order. If you are wondering why these add up to more than 100%, it is because there are always two currencies in every trade.
What Is The Best Currency Pair When You're Just Starting?
If you are just starting out in forex, most experts advise beginning with the EUR/USD pair. This is because there is a lot of information about these currencies and the high liquidity results in a smaller spread, so your costs will be lower.
Some of the other currencies have particular characteristics which make most newbies avoid them unless they have special knowledge. For example the value of the Canadian dollar is strongly influenced by the price of oil because Canada is an oil exporter. The Japanese yen can also be affected by the price of oil in the opposite direction because Japan is a large consumer and importer of oil.
You will not want to get involved in a lot of different currencies when you are starting out. The best thing to do is probably to take the EUR/USD market and stay with that for the first few months at least. GBP/USD would be the second choice of the major forex pairs for most new traders.
Article Source: Articlelogy.com
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