The best currency pairs to invest in Forex are found in a wide range of options available for online trading. In each pair, the first currency represents the currency being bought or sold (base currency), while the second currency is used as the payment currency (secondary currency). It doesn't matter what currency your trading account is in, as the exchange is made automatically and transparently. For example, if you decide to buy in the EUR/USD pair (Euro vs. US Dollar), you will be buying Euros by paying in US Dollars.
When you open a position, your goal is to predict how the price will behave based on the strength of one currency in the pair compared to the other. If you choose to open a buy position, it's known as "going long," and you wait for the price to increase before closing the position later with a sell and making a profit. Unlike other investment products where you only earn if the value increases and you sell it at a higher price than you bought it, in Forex you can also trade the other way around. You can open a sell position if you think the price is going to go down, known as "going short," and closing it later with a buy to make a profit.
What are the most popular currency pairs in Forex?
The four main pairs in the Forex currency market are EUR/USD, GBP/USD, USD/JPY, and USD/CHF. The most popular pair globally is EUR/USD, with high trading volume and liquidity. Other pairs popular with professional traders include GBP/JPY and EUR/JPY, which are known for their volatility and significant profit opportunities, although they also carry higher risk for beginners.
Other Popular and Attractive Pairs for Traders
In addition to the aforementioned pairs, there are other pairs that are attractive and popular for traders, such as major currency crosses with other major currencies, such as USD/CAD, EUR/GBP, EUR/AUD, and EUR/CHF. These pairs also feature high trading volume and liquidity.
Exotic Currency Pairs: Risk and Opportunity
Exotic currency pairs, which include less common currencies or currencies from emerging economies, such as RUB (Russian ruble), MXN (Mexican pesos), SEK (Swedish krona), NOK (Norwegian krone), DKK (Danish krone), HUF (Hungarian forint), ZAR (South African rand), PLN (Polish zloty), TRY (Turkish lira), BRL (Brazilian real) and SGD (Singapore dollar), among others, tend to have lower trading volume and higher volatility, which implies a higher risk when predicting their behavior.
Important Aspects of Forex Trading
When trading Forex, it is important to keep a few additional aspects in mind. Some traders choose to trade a single currency pair that they study thoroughly, although it is also advisable to keep an eye out for opportunities in other pairs. It is essential to develop your own trading system that is profitable and consistent, identifying strong entry signals while ignoring those that present the greatest risk. These solid setups can occur more or less frequently in each pair, so focusing solely on one pair can result in extended periods without opening positions. It is important to find a balance and trade according to your trading system, avoiding rash decisions based on emotions.
Additionally, it is advisable to use an economic calendar to stay on top of relevant news that may affect the currency pairs you are trading. If you use fundamental analysis, this news can help you make a profit, but even if you use technical analysis, it's important to keep in mind that a major news story can temporarily increase volatility and put your strategy at risk. This can result in the triggering of stop-losses or other unwanted movements in the market.
Consider the correlation between currency pairs
It is also relevant to consider that there is a correlation between various currency pairs in the Forex market. Some major pairs are positively correlated in their price movement, which means they tend to move in the same direction most of the time. For example, EUR/USD and GBP/USD usually have a similar trend direction. Taking these correlations into account can give you additional insight when making trading decisions.
Become a Profitable Forex Trader
If you've made it this far, you've probably realized that in order to become a profitable Forex trader, it's essential to develop your own trading system, manage risk properly, and maintain great discipline in every trade. Practice and experience play a crucial role in this process of growing as a trader. However, it is important to remember that the information provided in this blog is for educational purposes only and should not be considered investment advice. We strongly recommend seeking the advice of financial professionals before making any transactions and conducting your own research (DYOR) to make informed decisions in all your trades. With the right knowledge, preparation, and the right guidance, you can move towards your goals in Forex trading.
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This information is provided for general purposes only and does not take into account any specific personal circumstances or goals. You should not consider this information to be reliable investment advice. No representations or warranties are made about the accuracy or completeness of this information. Past performance is no guarantee of future results. Keep in mind that all investments carry risks and there is a possibility of losing capital.