When you trade on the foreign currency exchange market you are going to be using currency pairs. There are a lot of different currency pairs that you can choose from and you need to find the right one. The currency pairs that you use can seriously impact the trading you complete on the foreign currency exchange. It is important that you understand what this impact is and what currency pairs you should look at trading.
Common Foreign Currency Exchange Pairs
There are 7 commonly traded currency pairs that you can use. Not all of these pairs are offered by the forex brokers. Before you sign up for an account with a broker you need to consider what currency pairs they offer. You should always know which currency pair you are going to use before you start trading. This allows you to find the broker that offers you the right currency pairs for your trading.
The most commonly traded currency pairs are recommended to new traders. There are a number of reasons why this is the case. The most important reason is that these currency pairs are the easiest for new traders to trade with.
Currency Pairs and Strategies
One of the ways that currency pairs will impact you trading relates to the strategy that you can use. If you want to trade a currency pair you need to have a strategy that complements the currency pair movements. Of course, you should no base your strategy on the currency pair that you want to trade. The currency pair that you choose should be based on the strategy that you are going to use.
If you are not trading with the right strategy then you are not going to make a profit. All strategies call for certain movements in the market and the currency pair prices. If you are not getting these movements then the strategy is not going to work and you will either make a loss on the market or make very limited profits.
Currency Pairs and Trading Time
When you trade is just as important as how you are going to trade. All currency pairs have certain times of day when they work well. These times of day are when they are the most liquid. Some trades assume that you should trade currency pairs when they are liquid and volatile. This will only work if you are looking for volatility in the market. If you are not looking for volatility in the market then you should only trade when the currency is liquid.
Liquidity is important in trading because it affects the order execution that you will get. If a currency pair is not liquid then the order execution will be poor. This means that you are not going to get the price that you want for the currency pair. Of course, even in liquid markets there is a certain amount of slippage in your order execution. However, this is much greater when there is limited liquidity for the currency pair.