Stocks & Commodities V. 24:12 (14-18): Forex Focus: Which Currency Pairs Should I Trade? by Grace Cheng Access to foreign exchange trading has opened up exciting trading options for the retail trader. You can now trade alongside corporations and institutions in a highly liquid market that is global, traded around the clock, and highly leveraged. Before jumping into this market, however, we must understand the factors that affect the forex market. With that in mind, STOCKS & COMMODITIES has introduced Forex Focus to better prepare the retail trader to participate in the currency market. In the currency smorgasbord, which pairs offer the best trading opportunities? Try some of these to decide. The currency market can be likened to a buffet table, where you can select from a variety of currency pairs to trade. With more than 30 currency pairs available, the currency trader has overwhelming number of choices, but having so many options is not unlike a young adult suffering from “quarter-life” crisis, a recent social phenomenon whereby an individual feels so lost when faced with a multitude of career options that his life seems to be at a standstill. When choosing which currency pairs to trade, besides the usual factors such as liquidity, amount of spreads, technical signals, and so on, other interesting ways of deciding are available. In this article, I will highlight some approaches I use to decide which currency pairs offer the best trading opportunities. STRONGEST/WEAKEST PAIRING Currencies are always traded in pairs, with one currency exchanging for another. When you “long” a currency pair — that is, buying the first currency (known as base currency) and simultaneously selling the second currency in a pair (known as counter currency) — you are betting on the price appreciation of the base currency and on the depreciation of the counter currency. You want one currency to become stronger and the other to be weaker in the same pair. |
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