Which Currencies Do I Trade?

Which Currencies Do I Trade?

Which Currencies Do I Trade?

Best Currency Pairs to Trade

As a new comer to the FX markets, you're probably wondering what's available to trade in the largest market and which currency pairs are best to trade.
Let's begin by looking at the 3 different categories of currency pairs; majors, crosses and exotics.

Majors

The below table lists the major currency pairs and as you can see are they are made up the major countries vs the US Dollar.

PAIRName
EUR:USDEuro vs US Dollar (Fiber)
GBP:USDBritish Pounds vs US Dollar (Sterling or Cable)
AUD:USDAustralian Dollar vs US Dollar (Aussie)
NZD:USDNew Zealand Dollar vs US Dollar (Kiwi)
USD:JPYUS Dollar vs Japanese Yen (Yen)
USD:CHFUS Dollar vs Swiss Franc (Swissie)
USD:CADUS Dollar vs Canadian Dollar (Loonie)

The major currencies are the best place to begin as a new forex trader. There is vast amounts of liquidity and the spreads are tighter, allowing better fills when executing orders.

It's important to remember that most of the majors are either positively or negatively correlated to some extent.

The EUR:USD and GBP:USD are positively correlated, meaning these pairs move in the same direction.

At this point in time the Swiss National Bank (SNB) has pegged the Franc against to the EUR, which has resulted in the EUR:USD and USD:CHF, having a very high negative correlation, meaning they move in opposite directions. Before the SNB pegged their currency, there was still a strong negative correlation between the the 2 pairs of currencies.

When entering trades its important to pay attention to the correlation between each of the pairs. You don't want to double your risk and exposure by taking log positions in both EUR:USD and GBP:USD or shorting the EUR:USD and taking a long position in the USD:CHF.

Commodity Currencies

The commodity currencies are made up of the Aussie, Kiwi and Loonie. They're called the commodity currencies as the countries behind these currencies rely heavily on exporting raw material for the GDP.

Crosses

Crosses refers to any currency pair that doesn't include the US Dollar. The below list includes some but far from all of the crosses that are traded.

PAIRNAME
AUD:CADAustralian dollar vs. the Canadian dollar
AUD:CHFAustralian dollar vs. the Swiss franc
AUD:JPYAustralian dollar vs. the Japanese yen
AUD:NZDAussie dollar vs. the New Zealand dollar
CAD:JPYCanadian dollar vs. the Japanese yen
CHF:JPYSwiss franc vs. the Japanese yen
EUR:AUDEuro vs. the Australian dollar
EUR:CADEuro vs. the Canadian dollar
EUR:CHFEuro vs. the Swiss franc
EUR:GBPEuro vs. the British pound
EUR:JPYEuro vs. the Japanese yen
EUR:NZDEuro vs. the New Zealand dollar
GBP:AUDBritish pound vs. the Australian dollar
GBP:CHFBritish pound vs. the Swiss franc
GBP:JPYBritish pound vs. the Japanese yen
NZD:JPYNew Zealand dollar vs. the Japanese yen

The most commonly traded crosses are the AUD:JPY, EUR:JPY, GBP:JPY and EUR:GBP. These crosses offer great trading opportunities and as you delve further into trading forex, you will notice that the crosses provide much cleaner trends than the majors do.

Exotics

Exotic currencies are made up of developing and emerging economies rather than developed and industrialized nations like the majors.

PAIRName
USD:TRYUS Dollar vs Turkish Lira
USD:BRLUS Dollar vs Brazilian Real
USD:MXNUS Dollar vs Mexican Peso
USD: CNYUS Dollar vs Chinese Renminbi
USD:MYRUS Dollar vs Malaysian Ringgit
USD:THBUS Dollar vs Thai Baht
USD:RUBUS Dollar vs Russian Rouble

Novice traders should avoid the exotic currencies due to the lack of liquidity and the unpredictable nature of them. Due to the inherit risk of these trading these currencies, you will notice much larger spreads than the majors, which increase the difficulty of being profitable before you even enter an trade. Traders who wish to trade the exotics really need to do their homework on the nation's economic and political situation for the currency they wish to take a position in.

In conclusion, we advise to begin your trading career with the majors and then including some of the highly traded crosses. The best pairs to begin with are AUD:USD, EUR:USD, GBP:USD, NZD:USD, USD:JPY AUD:JPY, EUR:GBP.

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