Currency Trading In India, The Insider’s Guide to Choose Currency Pair in Forex: In Forex trading, how to choose a currency pair is important. If you make the wrong choice, no matter how good the method is, you will not be able to make a good deal.
However, if you become familiar with how to choose a currency pair, you will be able to choose a currency with active trading and develop a favourable strategy.
However, few people are familiar with how to choose a currency pair from the beginning. In this article, we will take a closer look at how to choose a currency pair.
By reading this blog, you will understand how to choose a currency pair and will be able to choose the currency pair that suits you best.
What is a currency pair?
First of all, I will introduce the basics of currency pairs.
Key currency and settlement currency
When conducting Forex trading, you start by choosing a currency pair. After that, you will trade in various ways, but it is important to understand the characteristics of the currency pair at that time.
The currencies of the two countries that are bought and sold in actual transactions are called currency pairs and are written as “US dollar / Indian INR” for US dollar and Indian INR, and “Euro / US dollar” for euro and US dollar.
Besides, brace currencies are separated by “/”, but the left side refers to the currency purchased with the “key currency”, and the right side refers to the currency to be bought and sold with the “settlement currency”.
In other words, buying “US dollar / Indian INR” means selling Indian INR and buying US dollars. The US dollar/INR pair means to buy and sell US dollars in INR. In many cases, each currency is abbreviated with three letters of the alphabet on the transaction screen.
Major and minor currencies
Currencies traded on Forex are divided into major currencies such as dollar-INR and euro and minor currencies such as the Turkish lira and South African. The currency pairs that can be traded in Forex are large
Currency pairs between major currencies
Currency pairs in minor and major currencies can be divided into two types. Let’s introduce each feature and recommended currency pairs.
Major currency x major currency
Typical currency pairs between major currencies are “US dollar / INR (USD / JPY)” and “Euro / US dollar (EUR / USD)”. The characteristics of currency pairs between major currencies are as follows.
- Low spread (transaction cost)
- Information is easy to obtain
- The market is stable
The characteristic of currency pairs between major currencies is that they are suitable for short-term trading such as day trading because the cost of each transaction is low and the market price is stable.
If you want to trade currency pairs between major currencies such as US dollar/INR and euro / US dollar, we recommend major Forex companies such as SBI FX Trade and DMM FX, which have low spreads.
Minor currency x major currency
Typical currency pairs for minor and major currencies are the South African and/INR(ZAR / JPY) and the Turkish lira/INR (TRY / JPY). The characteristics of currency pairs in minor and major currencies are as follows.
- Spread (transaction cost) is expensive
- Swap (interest rate) is high
- The market price may change suddenly
Since the market fluctuations of currency pairs in minor and major currencies are large, it can be said that it is a currency pair for advanced users who want to aim for high risk and high return.
Besides, currency pairs in minor and major currencies have high swaps (interest rates), and even if you hold them, you will make a profit, so you can make investments aimed at long-term swaps, such as stock dividends.
For currency pairs in minor and major currencies, we recommend the South African Rand / INR (ZAR / JPY).
Interest rates are stable compared to other emerging market currencies, making it a currency pair for swap-oriented investments.
The recommended method of choosing a currency pair
So how do you choose a currency pair? I will explain how to choose the recommended ones.
Choose a currency pair with a lot of trading volume
- To make a profit with Forex, it is important to choose a currency pair with a large trading volume. High trading volumes mean that traders around the world are paying attention to the currency.
- The more traders are paying attention, the more accurate technical analysis is possible.
- If the amount of information is small, the price will suddenly move significantly due to sudden factors, and the transaction will be just like gambling, so be careful.
Choose “Dollar Straight”
- Dollar straight in Forex trading means trading that combines the US dollar and another currency. In many cases, the dollar straight has a large trading volume and the market is stable.
- Therefore, sudden market fluctuations are unlikely to occur, and relatively low-risk transactions are possible.
- In general, stable currencies for which information can be easily collected and currencies with a large amount of trading volume have less fluctuation in the market price.
- If you want to minimize the loss in the event of a plunge, you should trade on the dollar straight. Another characteristic of the dollar straight is that the price movement is smooth because technical analysis is easy to apply and there are few speculative movements.
- Trends in the US economy affect the global economy even when trading in currency pairs other than the dollar straight, so it is important to keep an eye on the US economy.
- In other words, even when trading in pounds/INR, it is necessary to collect information on three countries, including the United Kingdom, India, and the United States.
- However, if you trade on a dollar straight, including the US dollar, the analysis will be done in two countries.
- If you choose dollar straight, we recommend this Forex company with the lowest spread in the industry.
Choose a currency pair that suits your trading style
It is important to choose a currency pair that suits your trading style. For example, when doing day trading, it is better to choose a currency pair that is on an up or downtrend.
As a general rule, Forex is a trade that can make a lot of profits by trading when a certain trend is out. You can’t make that much profit in the range market.
The currency pair also repeats the trend market and the range market. Depending on your trading style, some currency pairs may be at a disadvantage. Identify trends and choose a currency pair.
Choose by swap point
When buying or selling currencies, swap points are generated due to the difference in interest rates of currencies.
Swap points differ depending on the Forex company, so be sure to check the swap of the currency pair you want to trade in advance.
Characteristics of currency pairs
From here, I will briefly explain the characteristics of the currency pair selected by many traders.
US dollar / INR (USD / JPY)
The currency pair that is easiest for beginners to trade. Most Forex companies are characterized by the narrowest spreads. A currency pair that is easy to make a profit has a small spread.
Normally, price movements are moderate, but if the world economy is severely damaged, price movements can become violent.
Euro / US dollar (EUR / USD)
The most traded currency pair in the world. The movement is stable because there are the most transactions. It is a recommended currency pair for beginners.
Euro / INR (EUR / JPY)
It is a currency pair that is often handled in the foreign exchange market. It tends to be trendy, and it is also characterized by not having any irregular movements.
Most Forex companies have currency pairs that tend to be profitable and have narrow spreads. However, since volatility (price range fluctuation rate) may be high, caution is required when trading.
GBP system (pound system)
Anyway, it is a type with high volatility and price movements violently even in currency pairs. The pound/INR pair is still mild, but the bond/dollar pair is very difficult for beginners to handle due to the rapid price movements in the short term.
It is easy to make a profit as soon as the price movement is violent, but on the contrary, the damage when you lose is also large.
AUD (Australian dollar)
Since Australia is a resource-rich country, it is said to be a resource-rich country currency. This currency pair tends to be sensitive to commodity price movements (such as commodity futures).
Besides, it is easily affected by the economic conditions of the United States, Japan, and China, so it is necessary to pay attention to the economic indicators of each country when trading.
On the other hand, the Australian dollar/INR is also a popular currency pair due to the large interest rate differential with India and high swap points.
How to choose a currency pair is important in Forex trading. When choosing a currency pair, pay attention to trading volume, trading style, and swap points.
It is also important to select a company by looking at the characteristics of each Forex company while controlling the characteristics of the currency pair. To make a profit effectively, select a currency pair after collecting various information.
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