For anyone just beginning to trade forex, the different currencies of each country can be very confusing. Basically, they’re all money, so you should just be able to pick and choose, right? But there is more to it than that. You want to play around with the way the currencies work together and how they react towards changes in the economies of their respective countries. Do you want to pair one strong currency against a weak one? Or are you more concerned about the trading hours? Here are a few of the trading pairs and why you may (or may not) want to choose them.
You might notice that the most popular trading pairs have USD in them. With both the USD and the EUR being strong currencies, they can make a good pair for beginners. You can take advantage of the fact that they are two of the world’s largest currencies. They both have a high volume, so they’re liquidity rates are high and they are stable. Because they’re so popular, the bid/ask spreads are relatively low. You can create your own analysis and strategies, knowing that these markets are not likely to shift much. All of these benefits make the USD/EUR one of the recommended foreign currency pairs to begin with.
The British pound supports one of the world’s largest markets, and this pair is strong and usually predictable. With this currency pair, the support and resistance level style of trading makes a lot of sense. Besides being one of the largest pairs, it’s also one of the oldest pairs. The USD/GBP currency pair has high liquidity, since they are both backed by stable economies.
Both the Canadian dollar and the US dollar have a tendency to fluctuate based on commodities. Since both countries trade similar commodities, their fluctuations are often in the same direction. One of the exceptions, however, is the oil industry in the US. While there aren’t many instances where the currencies go their separate ways, It can make for an interesting strategy for skilled traders. These are times when experienced traders can make some nice profits. But in general, the CAD is normally influenced by politics, so it’s worth watching for elections or newsworthy events. Since the pair is typically stable, it’s a safe jumping in point for new traders.
USD/AUD – the Aussie
The Australian dollar has become a popular currency for beginning investors as well as those who have some experience under their belt. That’s for good reason – the Australian economy has a strong and stable history. As the country has grown, the currency has only become stronger. Though there have been a few temporary collapses in the AUD, it has shown consistently good gains against other currencies.
How to Choose a Currency Pair
Since the USD is one of the more stable currencies, it should be included in your pair. Stick it together with one of the other currencies and begin trading!