There are hundreds of currency pairs in the market today. These currencies are generally divided into three. The majors are currency pairs from the developed countries. They include pairs like EUR/USD, GBP/USD, and USD/CHF. Their main characteristic is their liquidity. This means that because they are widely accepted around the world, they are easy to exchange.
The currency minors are usually currencies from the developed and emerging markets. Examples of these pairs are the USD/TRY, DKK/USD, and USD/ZAR. Finally, the exotics currencies are pairs that combine those from the emerging markets and those from the minor developed countries. These ones include the NZD/TRY and AUD/EUR. These ones are known to be less liquid. This makes them slightly difficult to trade and forecast.
Liquidity
The first thing you should always consider is the liquidity of the currency pair. For new traders, it is usually recommended that you start with the majors. There is a lot of data that is available in these currency pairs that will help you make informed decisions. As you start, you should consider pairs like EUR/USD, USD/JPY, and AUD/USD.
Economic Data
The economic calendar is very a very important tool. It is important because it gives you the information on the economic data that will be released at a particular day. If you are a new trader, it is recommended that you select a currency pair that will not be directly affected by the data. For example, if the Fed is set to release the interest rate decision, you can trade currencies like EUR/CHF and EUR/GBP. This is because trading currencies with a dollar will expose you to a lot of risk. As you advance and become a better trader, you will learn how to trade before and after the economic data. An example of a financial calendar is this one provided by easyMarkets.
Volatility of the Pair
As you screen the currency pairs, you will realize that some are moving within a range. You will find others trade with a strong trend. You will see others make huge swings which is a sign of volatility. It is recommended that you avoid the volatile pairs and instead trade those that are in a trend. It is always easier to enter a trade where the pair is making a strong trend. As you advance your trading journey, you will start to learn how to trade during the volatile markets.
Your History With the Pair
As you advance your trading skills, you will become experienced in certain currency pairs. It is always recommended to specialize in a few of these pairs. Doing this will help you develop key skills and inside knowledge on the currency pair.
Pair Correlations
The concept of currency pair correlations is very important for traders. A correlation simply means the relationship between two things. It refers to the fact that some currency pairs move in a similar direction or in opposite direction. The former are known as perfectly correlated pairs while the latter are known as imperfectly correlated pairs. When trading the perfectly correlated pairs, the idea is to buy one pair and simultaneously sell the second pair. If it works out, the first trade will make a profit and the second one a smaller loss. The profit will be the spread between the two. In negatively correlated pairs, the idea is to open a similar trade and then profit from the spread.
