The explosion of over the counter Forex trading led to increased competition on part of brokers. Over last few years trade execution has become much better, spreads went down and trading platforms have seen dramatic improvement in performance and functionality. Another area of brokers services that witnessed huge changes is the number of currency pairs available for trading.
As recently as 5 years years ago there were platform offering only 4 major pairs for trading, all of them US dollar denominated - EUR/USD, USD/JPY, GBP/USD and USD/CHF. Not much choice there. Vast majority of brokers would provide 8 to 12 currency pairs. That was the staple. Only very select group could boast availability of 20 or more crosses.
Those times seem like ancient history. These days broker which offers 20 or so currencies is, well, services deficient. New norm seems to be availability of 50 + pairs on a trading platform, while few leaders provide over 70 or even close to 1000 currency based financial products. If swaps and options are included, this number can easily breach 300. Quite a difference over just few short years.
Does it mean that all these instruments are suitable for an average trader? The answer is resounding "NO". Some currency pairs are better than others, especially for beginning and less experienced traders. Some should be all out avoided or left for true professionals. That said, which are the best currency pairs to trade?
Trading instrument, should be liquid, have low cost of trading and have enough volatility to present profit opportunities as often as possible. Volatility, of course, is a double edged sword and can be detrimental, as well as desirable. Most of USD and, these days, EUR crosses fit into this mold.
Beginners should generally concentrate on the old stand byes, the 4 majors. EUR/USD and USD/CHF should the the first to consider. Both are very liquid, have low spreads (minimal trading costs) and move quite a bit. Incidentally, under current market conditions, USD/CHF is less volatile, and probably better for new comers, while still providing very good opportunities.
If you prefer fasting moving currency, GBP/USD is for you. The "cable" can move with surprising speed, but that works both ways- losses can be just as swift. Last one of the 4 majors is USD/JPY. Despite its much vaunted status, it is also a currency most susceptible to political influence. That can lead to more unpredictable behavior than the before mention pairs, but it has extremely low spreads and huge volume.
At present some of EUR denominated pairs are just as liquid as USD crosses. Most notable are EUR/CHF, EUR/JPY and GBP/USD. All of them are among the very best currencies to trade. EUR/CHF, for example, is far from being the boring instrument of years past. Daily trading ranges are very similar to USD/CHF, spread is the same and , by some accounts, volume is even higher.
Rounding up the best currencies to trade is AUD/USD. This pair has also experienced tightening spread, increased volume and widening daily trading range. On the contrary, the remaining dollars, USD/CAD and NZD/USD, should probably be left alone by less experienced traders. One of their less desirable characteristic is significant luck of liquidity pool at certain times of the day.
While it is good to have wide range of choices when it comes to trading options, it is not necessary, or even possible, to master all of them. There is nothing wrong with trading only the most popular currencies. They are most accessible and most information is available about them. Some of the best traders around specialize in only or two of these pairs. So can you.
Mike P. Kulej is a Chief Forex Strategist for Spectrum Forex LLC. He specializes in mechanical trading systems as explained on http://www.spectrumforex.com Spectrum Forex LLC offers numerous services to individual traders. You can also follow his trading blog at http://www.fxmadness.com With questions and comments e-mail him at kulej@spectrumforex.com
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