Thursday, 8 September 2011

Forex Currency Pairs for the Novice


If your thinking about Forex trading, it is exciting and can be lucrative, but there are many risks as well as rewards.  Learning the exchange currency market, and gaining the experience for success is the most important factor to succeeding.  It doesn't hurt to understand that you are a beginner and taking it slow should be paramount. 





The following should help you understand pairing, with some general guidelines: 

The major currency pairs are: 
  • EUR/USD – Euro/U.S. Dollar
  • GBP/USD – British Pound / U.S. Dollar
  • USD/JPY – U.S. Dollar / Japanese Yen

These are widely known and traded currencies and provide easy liquidity, to benefit from changes in price, as well as having tight spreads.  The most volatile being the GBP/USD, which gets a higher spread quote from brokers.   

The lists to focus on, as a beginner Forex trader are: 
  • Euro (EUR)
  • US Dollar (USD
  • British Pound (GBP)
  • Swiss Franc (CHF)
  • Japanese Yen (JPY)
  • Australian Dollar (AUD)
  • Canadian Dollar (CAD)
Avoiding currencies that have high spreads (big differences in price ranges and longer price spikes) are more risky and should be avoided.  The broker can answer any questions about the spread, or information can be found on the platform itself.  



Obviously the higher the spread, the more the risk involved, and the more difficult to trade.   

Keep your trading to a minimum, in other words, don’t try to monitor or keep track of too many currencies at once.  It will allow for too much error and difficulty in managing them.    

When studying one currency pair at a time, you can learn their behaviors and begin to learn the trade more effectively.  Doing this over a period of time, understanding how the Forex trade works will give you the information you need to succeed further down the road with the more exotic pairs.  

Experts suggest sticking with the EUR/USD to begin with as this pair has the lowest spread and responds well with basic technical rules and studies.  It’s not overly volatile and can be traded safely with less risk and closer stops.   

Same with the USD/JPY, although this pair has much smoother trends and can be lucrative as well as during the trends.   

The GBP/USD likes large moves, and brings in more pips in one single move than the others, and is good for breakout trading.  But, let’s not forget the risks – they rise proportionate to profit.  It requires further away placed stops, and belongs to the volatile pairs group.   

When you pair different currencies, be sure to calculate everything individually. 

And remember, uncommon currency pairs should be avoided until further knowledge is attained, to avoid losing too much of your capital, and to learn to trade these kinds of pairs successfully.