The forex market gives the lion’s share to every investor. It is due to the humongous transactions the market witnesses. All praises to international trading and tourism, which require an exchange of currencies from one nation to another. That’s why the average daily transaction touches and crosses the amount of USD 6.6 trillion daily. It is higher than several developed economies combined.
So, when you trade in the highest fluctuations market, you must choose the right currency pairs and deal with that. So, there’s a mechanism that one must follow and do a proper market analysis.
What is the Forex Market?
A forex market is a treasure that requires keys of wisdom and intelligence to extract maximum benefits from different currency pairs. It is a method of changing one currency into the other. In the market, currencies of various countries get traded and exchanged. That’s the part of a job or business for several people.
Fiat currencies have been continuing for several decades now, and their price fluctuations have several reasons. If you stay in some country and want to import goods from another country, it will require currency exchange. The valuation of countries’ currencies rise and dips against each other depending on various elements.
Why does Forex Exchange Happen?
The biggest reason for the foreign exchange is because a local shopkeeper in the USA won’t accept British Pound Sterling. The value of currencies change every second and ascertaining that is a specialised job. A local person cannot calculate that. Thus, there’s a standard norm that any tourist arriving at a country must exchange his/her nation’s money to the visiting country.
Interestingly, there’s no central market for currency exchange, and you can get your money exchanged from anywhere in the world. It happens over the counter electronically. It occurs through computer networks. Thus, transparency is optimum, and the market runs for 24 hours, almost five and a half days a week.
What are quote and base currencies?
A currency pair is an amalgamation of two different currencies. One of them is sold against the other or exchanged in real means. The rates of forex currencies get expressed by the amount of quote currency needed to buy a base currency unit.
The currency which is listed on the left is a base currency, while on the right is the quote currency. Basically, the base currency is the investor’s local currency.
Precisely, you quote the base.
What are the major financial centres for currency trading?
Major currency markets and financial centres include Londo, Tokyo, Zurich, New York, Singapore, Paris, Hong Kong, Sydney and Frankfurt. Thus, currency trading continues in some countries or other relentlessly. If there’s an end of the day, it continues due to various time zones somewhere in other countries.
What are the types of currencies an investor can buy and sell?
Primarily, there are three types of currency pairs that usually a trader trades in the name of forex trading.
- Exotic (crosses)
Major: These are major currency types that are renowned and the most appealing ones in the circuit. They are inclusive of the US dollar. The liquidity quotient is always available there as experts recommend them, and investors run behind them for investments. They enable traders to bid their highest on them.
Of the other two, majors have the highest liquidity and rightly so because they offer the biggest reason for earning also. You can research them easily. However, trading them can be tricky. Thus, you require brokers like 101investing, PrimeFin, TrdedWell, GlobalTrade ATF and others for working against the incessant competition.
Crosses or exotic: These currency pairs do not have the imprint of the US dollar. S, whenever you see the small forms of currencies that do not have any big currency, including the US dollar, they are crosses. These currencies get traded thinly.
These trade at lower volumes. So, the risk of no return value is there with them.
Minors: These types of currencies do not include one of the major global currencies, including the dollar. The amount of liquidity is lesser compared to the majors. Moreover, the data is available in a lesser quantity.
So, the market is less competitive.
What are the factors of good currency pairs?
Before choosing a currency pair, you should see whether you understand that currency’s fundamentals; otherwise, it is pointless trading with them.
Do you consider timing before trading?
The importance of the right timing is not related to sports, exams of other fields but forex trading as well. If you miss that, then a significant chunk of wealth slips away from your hands.
Do you wish to trade in the day or night makes a difference in the money you’re going to make? Distinguish markets open at different times than the time zone of the country you make your living into.
The trading route starts from Asia and pushes itself to the Middle East, European nations, and the US. The loop continues, and astute traders earn through the cycle.
It means all markets are important and open at different times. So, the relevance is quintessential. They give an immense opportunity to everyone who wants to seek it by trading major currencies.
So, the time of the day becomes essential. Also, the prices of currencies may differ depending on the timings.
Price stability is pivotal
The economic health of any country is directly related to price stability. It is intrinsically connected to a nations’ growth.
For example, the Britain to British Pound and the US to the US dollar.
The selection of the currency pair must happen depending on a country’s scenario.
Factor of liquidity
A liquid pair would take no time in purchasing and selling. You can see the time and trade with that without inhibitions. Sellers and buyers are readily trying to take them and start their adventure in the market.
The most amazing part about liquid pairs is that you can initiate scalping with them. You can buy and sell currencies multiple times a day and accumulate money.
With the availability of historical data and prices in the past, a trader can predict or speculate how a currency pairs will rise or fall. Trading major currency pairs in big or major markets make for friendly earnings.
You can make a judgement on how a currency or currency pair will perform in a given time frame. Investing funds during those times can pull off a miracle for forex traders.
However, lesser-known or newer currencies may not have a similar advantage. Thus, always bet on currencies that are old and have enough historical data, and you can see through the upcoming performance.
Top 10 currency pairs for trading in 2021
The currency pair is poetry in motion. You can sell and buy them as many times as you want due to the high liquidity factor and trust of traders. These represent the largest economies in the world. The dollar works in the US, whereas Euro has acceptance in almost all European nations. Thus, the backing is immense.
The exchange rates are linked 6to announcements by non-farm payroll, the US Federal Reserve’s interest rates, and the European Central Bank.
Both are major currencies and hail from one of the most developed nations. So, the faith of market players is immense on them. The United States of America is the numero uno country in terms of monetary, infrastructure and number of billionaires it houses. On the other hand, Japan stands at the third spot. Given the paltry population compared to the US, the Japanese currency is quite robust and prevalent.
As a trader, you must put your investment into the pair because two strong contenders render profits in bulk more often than not.
The exchange rate gets determined by the interest rates set by the Bank of Japan and the US Federal Reserve. However, the biggest reason is the natural calamities that Japan keeps on facing day and day after.
The currency pair is worth defining for many traders. Both currencies belong to the veto power holding economies, and their prices depend on how well the countries are faring in the international market. Also, their political and external affairs situations inflict on their currencies.
The exchange rate of the major currency pair gets toed by the US Federal Reserve and the Bank of England. Notably, both these currencies have huge demand in the financial market.
Interestingly, the goods and services traded were estimated at USD 273 billion in 2019. So, looking at the amount of trade, both currencies make a great investment for every trader.
However, post-Brexit, and the ongoing COVID-19 pandemic are some factors that one must not overlook while trading GBP/USD.
These currencies are the backbone of Europe. Trading them ensures you earn well and quick money. However, it falls under the minor pair category. The British Pound and Euro come together to form it. Moreover, the pair is highly unpredictable, given the strong and old ties of trade.
The geographically close links help in moving and shipping goods across the continent and in quick time. However, the snap of ties of the UK has caused high volatility in the EUR/GBP pair. Now, it’s an exciting prospect for investors.
You must not overlook the interest rates set in by the European Central Bank and the Bank of England.
These elements make the pair one of the hottest in the current times.
The Australian dollar may not be the biggest of currencies. However, getting paired with the USD makes it one of the most exciting prospects for traders. Invest in it and draw maximum wealth.
The factors that channelise the currency pair is exports of gold, iron ore, and coal from Australia. The US is a major exporter of many goods. So, needless to say, there’s a big contribution from the latter side.
Moreover, the US Federal Reserve and the Reserve Bank of Australia set in the interest rate that impacts the volatility.
It is a major pair that includes the Swiss Franc as the quote currency and the US dollar as the base currency. During a political turmoil, economic slowdown, it is the best and the safest pair for investment.
Interestingly, there’s a huge level of availability of historical data. You can check that and ensure when it will grow or dip. Thus, predict it and make quick and easy gains.
Also, Switzerland has Swiss Bank, known for the stash of cash from several countries, and tourism is at an all-time high.
The major currency pair may not be on the top of its game, because Hong Kong is not a vast country. Furthermore, there may not be enough exports also. However, the country has massive tourism and that’s why it has currencies from several countries flowing in. So, the USD/HKD pair makes for a great trade.
The linked exchange rate leads them to move up the ladder. The riots in HongKong took a toll on its currency in 2019. So, such factors are worth considering.
This is a minor pair with the involvement of Swiss Franc and New Zealand Dollar.
The dominance of New Zealand in the agriculture sector is not a hidden fact. So, trading willing to invest in the currency pair must check out the global agricultural prices. It can impact growth.
The Reserve Bank of New Zealand has a big role to play in it.
This major currency pair has the Canadian dollar and the US dollar. The oil price is a major factor that turns rates up and down for the CAD. Canada accumulates most of its earnings by exporting oil to other countries.
The rise and fall of the Canadian dollar depend largely on the value of oil. So, while you trade, pay attention to the factor.
The combination includes the Chinese Yuan and the US dollar. Both countries are at loggerheads to establish supremacy over each other. Thus, when you are investing in both, check the US-China trade war. It’s one of many factors that can change the dynamics of the game.
Trading forex currencies require knowledge of all markets and countries. A trader should know the economic conditions, political situations and trade policy. Also, trading with major currencies ensures your assets keep circulating because volumes are high there, and so are the chances of buying and selling. You can pass the litmus test by picking up brokers like Abinvesting and using their leverages, tools and experts’ views. read full indept ABinvesting review.