In forex trading, you have to buy and sell currency pairs for you to profit from the fluctuations in exchange rates. Currency pairs are also known as securities. Unlike commodities and equities, currencies are being paired in a buy-sell or sell-buy pattern.
For a first time trader, the biggest question is which pair or pairs you should trade. Well, there is really no central source of information that could help you figure out the right way of ranking currencies. The currency pairs are being classified according to liquidity and volatility, volume and spread of trade.
The cluster of pairs most actively traded is known as Majors. These include JPY/USD, USD/GBP, USD/EUR, USD/NZD, USD/AUD, CAD/USD and CHF/USD. Majors are accountable for over 70% of the total foreign exchange turnover.
USD/EUR is the most predictable, liquid and popular pair. The value of the pair depends on the monetary policy of the US Federal Reserve and European Central Bank or ECB. Price quotes are also sensitive to different fundamental factors. The general economic health of the EU and the US, financial statements of the large corporations, dynamics of the raw materials and commodity markets have direct effect on trading this particular pair. Price dynamics are also predictable with the use of technical indicators.
JPY/USD is the second liquidity pool level in the foreign exchange market. This is Asian trading’s top currency which is accountable for approximately 17 percent of the overall market turnover. This pair is sensitive to numerous fundamental factors. The price dynamics may be predicted with the use of vital economic data and technical analysis. Known for high volatility, the pair provides professional traders the finest trading opportunities.
This currency pair accounts for more than twelve percent of the overall trading volume. It’s the most traded and popular currency pair among expert traders who are focused on short-term aggressive techniques. The price quotes are sensitive to the fundamental factors, the actions of Bank of England as well as statistical data on the state of British economy. This currency pair has high volatility, which enables you to maximize the profits in short-term.
USD/CAD and AUD/USD
These currency pairs are less liquid than to the pairs mentioned above. They’re considered to be commodity currency pairs because their prices are correlated with gold and oil. Australia is the largest gold producer and the price of AUD/USD is basically dependent on the gold prices. Like Australia, Canada is considered as one of the biggest oil producers. That is the reason why the price of USD/CAD is also reliant on the oil prices. The values of such major currencies keep fluctuating as the trade volumes between the 2 countries change each minute.
There are other currency pairs you will find in the world of forex trading. If you want to get started with trading with currencies, always be wise when choosing a currency pair to trade and being knowledgeable can help you avoid some mistakes.