As a Forex trader, one of the questions that haunt you everyday is what the best currency pairs to trade in would be.
Currency prices are dynamic and are often affected by external factors like socio-political events.
Last year we saw how Greece as a country went under debt and the currency as a whole suffered a major setback.
Similarly, post-Brexit this year, the United Kingdom also saw a major currency price drawback.
Therefore, it is always vital to keep an eye out about the rise and fall of currency prices before you decide to trade in them.
INR (Indian Rupees) is slowly picking up it’s pace in the global currency market.
But, compared to currencies like the US Dollar, we still have a long way to go.
So, to be begin, how many times of currency pairs are available in the global market?
Mainly, these currency pairs can be divided into three categories :
These currency pairs are considered to be from the economically important countries and are mostly paired with the US dollar.
Majors also include gold and silver as these are normally quoted in US dollars while being regularly traded.
Here’s the list of majors in the currency pairs :-
Why are these currencies grouped together?
These currency pairs tally in their price movements and can mostly be considered indistinguishable when compared.To put it more simply, the price movement of EURUSD and the GBPUSD though not identical, often show a similar pace of movement.
While, the British Pound is a more unpredictable currency than the Euro or the Dollar, it’s trend is always related to that of the EURUSD.
This interdependency of currency pairs within the market is often termed as “correlation business”.
Correlation business requires the trader to be wary about making trading decisions so that he/she does not exceed their risk against an open position in the market.
To put it more simply, if a trader enters a long on the EURUSD and the GBPUSD, he is doubling or exceeding his risk, and there is really no point in trading both at the same time, he should just trade one or the other.
At this point, bring in the logic of a price action setup.
Notice that if there is a similar price action setup on both, pick the currency pair that the setup looks more defined on.
Out of all currency pairs mentioned above, without a doubt, EURUSD is the one traded the most in the market.
It constitutes for about 27% of the Forex market volume.
“Crosses” are currency pairs which are not paired against the U.S Dollar while being traded, unlike the “majors”.
The “exotic” currency pairs include currencies of emerging economies from developing countries as opposed to currencies of developed industrial giants like the United States of America or Europe.
The most commonly traded “exotics” in currency pairs include :-
Note how these countries have undergone socio-political turmoil in the recent past and yet are considered to be a prefered currency to be traded in.
Due to this, most seasoned forex traders would recommend against trading in these currency pairs given the risk associated with them.
They are considered volatile and less reliable as compared to the currency pairs listed in “majors” and “crosses”.
Though this article lists out the giants in global currency, it’s main attempt is for you to understand Forex trading better.
How do currencies trade?
How are they grouped?
Thus, inspite of INR (Indian Rupees) not being a part of this list, you can still take up the core ideas associated with Forex trading discussed and incorporate them into your trading plan.
But, make sure, you keep trading with exotics for later as beginners in Forex trading often get confused with the sudden price changes associated with them.
Make sure you stick to what you know and compare for better results!
To read more on investment strategies associated with Forex go to: http://stockmarketsignals.com/investment-strategies-forex-etfs/