More than $1.5 trillion is traded on the world’s forex markets each day. That is a phenomenal amount of money. Each day, millions of people enter the markets in the hope of turning a fast profit. One of the biggest forex brokers claims that more than 50% of its accounts are profitable, so there is clearly money to be made from trading forex. It also helps that the forex market is very accessible and, thanks to the internet, very convenient. Also, unlike with equity and futures trading, forex gains are taxed as income, not capital.
Currency Pairs to Trade
Table of Contents
Know Your Pairs
EUR/USD is the most traded currency pair. This pair accounts for 50% more trading volume than USD/JPY or GBP/USD, the next two top currency pairs in terms of trading volume. It is customary for new traders to begin with well-known currency pairs, as they offer greater liquidity and better spreads. It is also better to select a currency pair for the region you trade in, as this offers the best possible trading conditions.
For example, if you live in Australia, the most traded pairs are AUD/USD and EUR/USD, but if you live in the US, you would be looking at EUR/USD and USD/JPY.
Open Charts
Draw up a shortlist of potential trading pairs and open charts on your preferred Metatrader 4 platform for each one. This lets you follow trends and check how the markets are behaving. Follow which pairs are moving up and which are falling. Look out for patterns and trends, as this will help you decide which currency pair to select. For example, the best currencies to trade are those where a strong currency is buoyed upwards while being supported by a weak currency. Use this to conduct an accurate analysis of the pair.
Pay close attention to market news, global news, and politics in the region. All of these things can cause volatility in the forex markets. For example, the recent news that Michel Barnier has hinted at a more accommodative stance in hard-fought Brexit negotiations pushed sterling over the $1.30 mark for the first time in three weeks.
Conduct Trading Analysis
Market analysis will help you to identify trending currencies. Select a currency pair that has a strong trend. That said, it is better to focus on more than one currency pair. Diversifying your forex portfolio will help you to minimize your losses in the event of a sudden market shock.
Identify Your Risk Tolerance
Trading in forex is a risky business, so the onus is on you to minimize your risks. Decide how much risk you can tolerate and select a currency pair accordingly. Some currencies are more stable than others, so if your tolerance to risk is low, look for one that is less likely to be impacted by an upcoming risk. Don’t forget to set stop and limit order levels, as this will minimize your losses if the markets turn against you.
Remember that research and analysis are incredibly important. And finally, start off with a demo account to test your strategies before you trade using real money.
