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- What is a currency pair and why is it needed?
- Majors (majors) - the main currency pairs
- Exotic couples
- Cross-rates (Crosses)
- Pair Selection Criteria
- Most Liquid Pairs
- Currency pairs with moderate risk
- Exotic currency pairs
- Cross rate trading
- Important features to consider
- General tips for choosing a currency pair
- Nuances from "Experienced" traders
- When is the best time to trade currencies?
If you decide to trade on the forex market, then the first thing you will need to do is to decide on the instrument of your trade, namely, which pairs are best for trading.
The exchange market has a huge selection of various currency pairs, shares of large companies, futures contracts for metals, coffee, cocoa, etc.
It is very difficult to make a choice here, in view of the wide range of offers, but basically traders, and especially beginners, choose exactly currency pairs.
What is a currency pair and why is it needed?
A currency pair is a price quotation of the exchange rate for two currencies traded on the international Forex market. Moreover, the value of one currency is quoted against another. The first declared currency of a Forex pair is the base currency, the second one is the quoted one.
In pairs, the price value of the base and quote currencies is displayed. Quote indicates how many of its units are needed to buy one unit of the base currency. When placing an order in Forex, the base currency is bought and the quoted one is sold.
All currency pairs can be divided into 3 groups:
- Cross-rates (Crosses)
Now let's look at each group in more detail.
Majors (majors) - the main currency pairs
This group includes currency pairs that include the US dollar and the currency of a country with a well-developed economy.:
NZD/USD – New Zealand dollar/US dollar
AUD/USD – Australian dollar/US dollar
GBP/USD – British Pound/US Dollar
EUR/USD – Euro/US Dollar
USD/JPY – US dollar/Japanese yen
USD/CAD – US dollar/Canadian dollar
USD/CHF – US dollar/Swiss franc
Among these currencies, one can single out a pair for which it is not worth opening positions, this is the US Dollar / Canadian Dollar.
This is a poorly predictable currency, both by fundamental analysis and technical.
The maximum that you can try with it is to try the scalping strategy at night.
It will be difficult for novice traders to work on USDJPY, USDCHF. USDCHF - it is difficult to catch the constant movement of the trend on it, and USDJPY requires serious macroeconomic analysis, and strongly reacts to news.
Exotics - currency pairs of the dollar and currencies of countries with underdeveloped economies. These are EUR/DDK, USD/MXN and a bunch of others.
Almost no one trades on such instruments, because they are not very liquid, do not lend themselves to any analysis, and can do anything at any time, regardless of the laws of classical trading.
Crosses - they do not include the US dollar. They are characterized by weak volatility and, as a result, weaker movement than Majors.
AUD/CHF – Australian dollar/Swiss franc
AUD/USD – Australian dollar/Canadian dollar
AUD/NZD – Australian Dollar/New Zealand Dollar
AUD/JPY – Australian Dollar/Japanese Yen
CHF/JPY – Swiss Franc/Japanese Yen
USD/JPY – Canadian dollar/Japanese yen
EUR/USD – Euro/Canadian dollar
EUR/AUD – Euro/Australian dollar
EUR/GBP – Euro/British Pound
EUR/CHF – Euro/Swiss franc
EUR/NZD – Euro/New Zealand dollar
EUR/JPY – Euro/Japanese yen
GBP/JPY – British Pound/Japanese Yen
GBP/AUD – British Pound/Australian Dollar
GBP/CHF – British Pound/Swiss Franc
NZD/JPY – New Zealand dollar/Japanese yen
Only some of these pairs can be used in trading.
Most experienced traders stop at the yen, namely: EUR / JPY, AUD / JPY, NZD / JPY and GBP / JPY. But here you should not relax, as all these pairs have much in common with USDJPY, and can also behave unpredictably in the stock market.
Metals include silver and gold. They are not presented separately in Forex, so they are tied to the US dollar and euro currencies.
XAU/EUR - Gold/Euro
XAG/EUR - Silver/Euro
XAU/USD – Gold/US Dollar
XAG/USD – Silver/US Dollar
Intersections of metals with the euro show low market liquidity, so few people use them in trading.
The most common is Gold/US Dollar. You need to be very careful when trading silver, as the cost of one point of price movement is very high.
An incorrect forecast for silver can instantly reduce your deposit to zero.
Pair Selection Criteria
The main criteria for choosing the best currency pairs are:
- Liquidity – the ability to quickly make a deal at the best price (no slippage). The more liquid the instrument, the lower its spread and the more likely it is to make a quick profit.
- Volatility - the range of price changes for a fixed period of time.
- Item price. It is better that it be in integers, it is more convenient to count.
- Small spread help reduce unexpected costs.
- Major Pairs - those that have USD in their composition. Not only because they are more liquid, but because the network has more useful information on these particular pairs.
Most Liquid Pairs
These include: GBP/USD, USD/JPY, XAU/USD. These are the best pairs for trading, which are most popular with large investors. They always have up-to-date statistics updated online, and the largest volumes of transactions are made on them.
For beginners, trading with this category of assets may seem difficult for the following reasons:
- They require maximum attention and the ability to make decisions quickly. Trading is carried out on short timeframes: more often on the M5-M30 intervals, less often on the hourly ones.
- It is necessary to follow a large flow of information and be able to assess the significance of a particular factor. A trader must understand geopolitics, macro and microeconomics, must understand what information will have the greatest impact.
Of the above pairs, USD/JPY is considered the most unpredictable, it can be traded at night. Another problem for beginners is that these couples are the most manipulated.
The creation of the “necessary” news background in the media and specialized forums, a large number of analytics and forecasts make it difficult to make an informed decision.
Another difficult currency pair for beginner traders is the EUR/USD, an example of the volatility of which is clearly visible on the 10-year chart below:
Currency pairs with moderate risk
These include: USD/CAD, AUD/USD, NZD/USD, USD/CHF. More calm pairs, which are less affected by fundamental factors:
- The USD/CAD pair is considered a commodity pair, its rate largely depends on statistics on the level of production and oil reserves.
- AUD/USD and NZD/USD are similar, often moving in the same direction, with internal economic statistics and commodity prices having the biggest impact.
- USD/CHF is considered more predictable than EUR/USD, although in most cases their directions coincide.
In terms of the ratio of forecast accuracy, profit and risk, for beginners, these currency pairs are considered the best for intraday and medium-term strategies. It is better not to use these pairs for long-term strategies.
Exotic currency pairs
These include: USD/RUB, USD/MXN, USD/ZAR. Their distinguishing features:
- low liquidity and high volatility;
- high spread;
- tight control over the exchange rate by the Central Bank with manual control;
- strong dependence on local political and economic factors, which are not always fully covered by news agencies.
"Exotica" is interesting because it allows you to practice working with technical indicators and trading advisors.
The course of these pairs is relatively calm in the short term (although the spread sometimes makes intraday earnings impractical), in the long term they are rather venture investments with the opportunity to both earn a lot and lose a lot.
Cross rate trading
Cross rate pairs are currency pairs that do not contain USD. For example, EUR/JPY, CAD/CHF, GBP/AUD, etc. They are considered to be more mobile compared to classic pairs and often show a pronounced trend.
But at the same time, their movement is somewhat chaotic and the basic tools of technical analysis do not work well for them.
The most common strategies for trading with these pairs are a fundamental analysis of the correlation of the economies of the respective countries with each other and the United States, as well as a simultaneous analysis of the charts of these currencies in conjunction with the USD.
For novice traders, cross rates can be considered as an alternative to the main pairs as a simulator for practicing market assessment skills. But we strongly do not recommend starting trading with crosses.
Important features to consider
Trading pair volatility. Volatility refers to the range of fluctuations of a currency pair in a certain period, more often - daily.
In accordance with this, some trading pairs are traded in a relatively narrow range, without sharp fluctuations, while others are vice versa. Thus, the GBP/JPY and GBP/USD currency pairs are highly volatile and it is recommended to trade them only for those who have an appropriate trading strategy designed for sharp and serious movements.
Otherwise, you can quickly lose your deposit. Trading pairs EUR / AUD, EUR / CAD are much calmer, even more calm are EUR / USD, USD / CHF, USD / JPY, which most traders trade on.
The calmest are EUR/GBP, EUR/CHF – fluctuations for which are 3-5 times lower than for major currency pairs.
Time of the most activity. Each trading pair is most active at a certain time. Thus, EUR/USD and GBP/USD are most active during the European and American sessions and inactive during the Asian session.
Trading them during the Asian session is not recommended due to the large number of false signals and flat movement. It is recommended to trade a currency pair that is active during its related trading session, for example, the European session is suitable for European currencies.
Correlation of currency pairs. The movement of some currency pairs causes the movement of other pairs simultaneously or with a small time lag.
There are so-called allied currencies, when the movement of some currency pairs causes a directed movement of others with a high degree of probability and opponent currencies, that is, some currency pairs move in tandem with each other, and some vice versa.
So, for the error-free opening of transactions on GBP/USD and EUR/USD, it is important to break through the resistance (support) levels for all currency pairs, namely AUD/USD in one direction, and USD/CAD, USD/CHF and USD/JPY in the opposite direction.
It is necessary to study the correlation of currency pairs and use it when opening positions, but you should not fully rely on this parameter.
General tips for choosing a currency pair
When choosing a Forex pair, you can focus on 3 main parameters:
- Spreads. It is always more profitable to trade instruments that have a narrow spread. The narrower it is, the fewer points between the price of divergence and demand, which means that the trader loses less when closing a deal. In particular, tight spreads are mandatory for fans of scalping and other types of "fast" trading. EUR/USD has the tightest spread (2 to 3 pips) while, for example, GBP/JPY has a spread of 6 to 10 pips.
- Volatility. 90% traders (myself included) rely heavily on technical indicators. While volatility is considered good because price movement is money movement, it comes with its own risks and requires a wide stop loss range. The higher the volatility, the more difficult it is to predict price action.
- Trading sessions. The best time to trade Forex is when the market is most active and therefore has the most trading volume. During the Asian hours when Tokyo opens, the best time to trade is from 7pm to 10pm ET. When the London market opens, almost all currencies can be traded profitably.
Nuances from "Experienced" traders
EUR/USD: attracts the most trading volume in the forex market and is therefore the most frequently traded pair with low spreads.
- The movement of the EURUSD currency pair is strongly influenced by news events (such as NFP, FOMC, economic difficulties in the euro area);
- Most of the movement of this currency pair occurs during the London session, but usually the pair does not show large movements during the day;
- The pair is trading in an average daily price range;
- For most of the trading day, the EURUSD currency pair moves in one direction (often favoring deeper Fibonacci levels).
GBP/USD: couple with pronounced movements. She often likes to chart up and down spikes and is well known for her volatility and big moves.
- The pound shows the greatest movement during the London session;
- During the opening of the London session, the pound likes to show spikes, directed up and down, at which time false breakdowns are common;
- The price likes to break through the line of support and resistance, taking out stops;
- GBPUSD often pulls back to deeper Fibonacci levels like 80.9;
- The daily range of price action is usually quite high;
- This pair likes to spike against the trend, and in these cases it is more attractive to trade against the momentum;
- Often there are news events in the GBP that have a significant impact on this currency pair, but after the release of such news, the market may remain calm;
- This currency pair is strongly influenced by such news events as NFP, FOMC, in a word, the same news that affects EURUSD;
- Often, the beginning of reversals usually occurs with a “saw”, with price movement corrections and not immediately.
USD/JPY: is another currency pair heavily influenced by major US dollar news events.
- When the USDJPY is in consolidation, it slows down extremely and usually trades in an ultra-small range;
- If USDJPY is in a strong trend, it will generally follow that trend without major pullbacks. This contributes to the continuation of its trend, sometimes showing pauses during which a small bearish or bullish flag is formed;
- In a trend, typical Fibonacci levels for USDJPY are 23.6 and 38.2.
AUD/USD: is the opposite of GBPJPY or GBPUSD as it moves more slowly.
- The price will continue to push in one direction, but on its way it will often encounter pullbacks, after which it will continue to trend again;
- News events that affect the Aussie often have a large impact on all currency pairs associated with the Aussie;
- Often shows a fairly large move during the Asian session, and also shows significant movement throughout the London and New York sessions;
- The Aussie is heavily associated with commodities, Australian exports and Chinese economic data (such as imports, exports and production).
EUR/JPY: a universal pair without obvious distinguishing features.
- Often shows larger moves than the USDJPY pair, but less than the GBPJPY pair;
- Suitable for traders of all types of trading;
- Likes to display chart patterns such as bearish and bullish flags.
GBP/JPY: very volatile, almost on par with gold.
- The pair demonstrates strong movements and has maximum volatility;
- In fact, the GBP/JPY pair is probably the most volatile pair with the biggest moves, earning it the name "Ferrari" due to its speed.
EUR/AUD and GBP/AUD: It is better not to trade at short distances.
- These currency pairs are characterized by large movements in the market, their prices are growing rapidly and also falling rapidly;
- Pairs are often in a trend that lasts for quite a long period of time.
USD/CAD: clearly defined trend movements even on lower timeframes.
- The couple was dubbed the "looney" apparently because of her crazy up and down motions;
- The volatility for this currency pair is not so sharp, but it is associated with the release of news on oil.
EUR/USD: very unstable pair for long-term trends, suitable for trading short positions.
- For it, historically, there is a high correlation with the EURUSD pair;
- The franc often appreciates in value as traders race to find a "safe currency".
EUR/GBP: "turtle" among currency pairs, gains momentum for a very long time and comes to its goals. There is probably no reason to choose this pair for trading, as there are many others.
- EURGBP as a whole is the slowest moving currency pair with low volatility;
- But despite the most minor movements, it has occasional nasty spikes.
USD/RUB: in terms of movements it is similar to cryptocurrency, in view of the large spreads, it makes no sense to trade on short positions.
- USDRUB is highly dependent on fundamental factors, such as the price of oil, the general situation of the Russian economy, etc.
- Commissions and spreads for this pair vary depending on the state of the economy, but most often they are simply huge;
- The percentage of speculative transactions is very high;
- The tool is clearly not for beginners.
When is the best time to trade currencies?
Asian sessionusually falls in the morning. Forex trend currency pairs from this session are distinguished by their calm movement than other sites.
What pairs are trading at this time?
- GBP/JPY. This is the most trending pair from the Asian session, volatility reaches an average of 110 profitable points. However, if all conditions are met (which are very rare), possible volatility can reach 400 points!
- GBP/CHF. It is in second place, and its volatility corridor is about 90-95 points. This pair allows the trader to get a fairly large profit, the main condition is to set minimal risks.
- Traffic USD/JPY is approximately 80 points. Yes, it is really less than in the previous ones, however, a trader can make quite good money from it.
European session is characterized by sufficiently high dynamics, due to which good conditions are formed for a trader to have a large income on Forex trading on the price difference.
Consider the traded pairs at this time:
- GBP/CHF has a fairly good trend movement - one session can reach 150 points!
- Currency pairs like GBP/JPY and GBP/CHF, are quite close to each other in terms of indicators. The difference is approximately 5-10 points.
- The third place is USD/CHF, the value of which depends on how unstable the dollar is. Trend volatility reaches 117 items.
- GBP/USD not much different from the previous one. Variability goes up to 112 points.
- EUR/USD - one of the most popular currency pairs in the Forex market, although its range is slightly less than the previous ones - 95-97 points.
American session. Pairs with a protracted trend are mainly traded. This feature is very important if you are going to use Forex trend trading strategies. One of these pairs is AUD/USD. Note that trading in this session is held only in the evening/night.
Rating of currency pairs of the American session:
- The first place is occupied by the trader's currency instrument GBP/CHF. The volatility of this pair is 129 points.
- Second, a couple GBP/JPY. The variability index is within 119 items.
- And in third place - USD/CHF, whose volatility reaches 107 items.