There are dozens of currencies in the global Forex marketplace, and this can make it difficult at times to figure out which the right pair is for you to trade. There are a three main ways to help ease the difficulty of the decision making process for yourself, but the truth is that these three methods do not always intersect. Ultimately, what it comes down to is your comfort levels and ambitions, but by putting some thought into it, you can figure this out fairly accurately for yourself.
The first method is by looking at which pairs have the fastest movement. Fast movement means faster profits, and this is definitely a good thing. The problem is that fast profits can also mean fast losses if you are not careful, and this is something that you definitely want to avoid at all costs. Prudence will help, but sometimes in the heat of the trading moment this can be quite impossible to accomplish. What the real problem here is, is that the most movement prone currencies are also the most unstable. If you look at the Mexican peso versus the Egyptian pound over a period of five days, you will often see both severe ups and severe downs. If you are careful, this can mean huge profits, but look at the situations in both of these countries. Mexico is currently plagued by drug cartels and Egypt is experiencing extreme and ongoing political unrest. Yes, there’s potential for a Forex investor here, but there’s also danger. For most people this does not equal long term success.
The second method of selecting a currency pair is to go with what you know. Odds are you already know a lot about your own country’s currency. That’s pretty normal. But what you might not know is that you probably know some about at least one or two other major currencies. The euro is a good example here. In fact, the EUR/USD (euro and U.S. dollar) is the world’s most heavily traded currency pair. Both of these currencies are fairly stable most of the time, but they do have very high trading volume, and this means that prices can and often do move in big ways. The key to trading something like this is your timing. The euro and the dollar both usually only have big movement when something major is happening in the world economy, so paying attention to movement and the extraneous factors in the particular governments and economies will give you the highest degree of success when trading major and well known currencies.
The third method of currency selection is a bit less scientific. Here, you harness the power of the news to find out what is going to be on the minds of the trading public for the time being. If there’s a news report out of Russia that social upheaval in allied nations is worsening and that Russia plans on getting involved, it will definitely have an impact upon the pair prices of nations that oppose such an action. The current situation between Russia and the U.S. confirms this line of thinking. Over the past few days, the already underpriced rouble has seen considerable losses, and if things keep going like they are in Ukraine, this drop will continue across the board for a while. This is, of course, an extreme example, but it is one that many traders are latching onto and making a lot of money off of. Things like this happen all the time, although not always in such a highly publicized or obvious manner. But when they do happen, and you have the knowledge necessary to make it work in your favor, picking the currency pair to trade should become a lot easier.