It’s well known that trade in Forex market is done with the money. Thus, money here is both goods and means of payment, so the main trade instrument on the market is currency pair.
Quite a vital issue for traders is choosing a currency pair for trade.
A code of 3 Latin letters is used for notation of currencies – usually, the first two letters stand for the country of the currency origin, and the last one – for the first letter of the currency name (USD, where US – United States, D – dollar).
As Forex trade is always done in currency pairs, the notation of a full financial instrument consists of two code designations of currencies divided with a slash – for example, EUR/USD. The first currency is base, the second is quote currency. Operations are done with a base currency whose price is measured in quote currency. In other words, in USD/JPY pair a trader buys or sells dollars for Japanese yens.
There are most popular currency pairs whose trade volume is very high in Forex market – these are, in particular, EUR/USD, USD/CHF, GBP/USD and USD/JPY. Each currency pair has its features that a trader has to know in order to carry on effective trade.
EUR/USD pair is the most traded both among novice and professional traders. For confident trade with this pair, a trader should keep track of what’s happening in the political and economic life of Europe and America.
USD/JPY is the second by popularity, trade in this pair is especially active during Asia-Pacific trade session. GBP/USD pair takes the third place – this instrument may be quite difficult for novices, as uncontrolled volatile movements are common for it.
USD/CHF and GBP/USD pairs are considered to be the lowest in liquidity. Thus, for example, low liquidity of USD/CHF pair is quite attractive for hedge funds, and also for traders whose goal is to make maximum profit in a short period of time.
There is no universal answer to the question: which currency pair should be chosen for trade? However, it’s known that the optimal choice for a trader is the pair for which he can predict movements. Novices are recommended to choose their trading strategy first, and then choose a currency pair considering the specificity of the strategy, volatility and time of trade sessions.
Volatility is currency pair price fluctuations in a certain period of time. Currency pairs have different volatility level – for example, GBP/JPY and GBP/USD are pairs with high volatility for which price jumps are common, thus trading in them is recommended to professionals or speculators who have a special strategy tailored for sudden price changes. Pairs with the lowest volatility are EUR/CHF and EUR/GBP.
I hope this short article will help you understand the basics of forex currency pairs. If you make a little research on these major pairs, their volatility periods and the events which influence these pairs most, you will eventually find your ideal pair to trade with.
Curious to know which currency pairs does IMMFX offers? Well, you must know this before trading with us. Read more about our Tradeable Instruments to find which Currency pairs you can trade with IMMFX.