Understanding The Forex - Which Currencies Should You Trade?

In the foreign exchange market, every currency pair is unique. Every set of pairs has its own behavioral tendencies that overtly distinguish it from the others. As such, it is essential to trade the pairs that best match up with your personality.

There are three main types of currency pairs, namely majors, minors, and exotic pairs. The major pairs are currencies from the major economies that are paired with the United States dollar. The majors are the most liquid in the foreign exchange market. Some of them include EUR/USD, USD/JPY, GBP/USD, and USD/CHF. Since the major currency pairs are the most active in the Forex market, you should consider trading them if you have an active personality and you are able to make decisions faster.

It is important to note that many of the major currency pairs are correlated in their price movements. This means they move in a near-identical fashion to one another. For instance, the EUR/USD and the GBP/USD tend to depict the same price action (but not precisely the same). Therefore, if the EUR/USD is in a clear uptrend or downtrend, then we can assume that GBP/USD is also following the same trend. The EUR/USD is also the most highly traded pair in the foreign exchange market. Because it is the most liquid, it has the highest volume of all the pairs and it is the easiest to trade.

The minor currency pairs, also known as cross-currency pairs are not paired with the United States dollar. Some of them include EUR/CHF, EUR/GBP, and CAD/JPY. The minors provide more opportunities for traders by offering more currencies to analyze and trade. In essence, the chart patterns of the minors tend to be clearer than their counterparts, the major currency pairs. This makes them easier to forecast and trade. If you want to stay from trading the greenback because of a major happening or any other reason, then you should consider trading any minor pair.

Exotic currency pairs consist of a currency of a developed country paired with a currency of a country with an emerging economy. Examples include USD/ZAR and USD/MXN. Exotic pairs in the foreign exchange market are not actively traded like the majors and the minors. Therefore, they tend to be less volatile. You should consider trading the exotic pairs if you are a patient person who can wait for a long time before realizing profits.

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