Forex trading in Ghana is easier when you know the basics. Currency pairs are one of the basics - see what they are and what their features are.
Three types of currency pairs are available, categorized by the size of their average trading volume or liquidity:
The most liquid pairs, that is, those that have the highest average daily trading volume (and lowest risk of slippage), are generally some combination of the USD and one of the other majors, that is, the EUR, JPY, GBP, Swiss Franc (CHF), CAD, NZD, and the Australian Dollar (AUD).
Speciﬁcally, here are the major currency pairs, ranked by trading volume: EURUSD, USDJPY, GBPUSD, AUDUSD, USDCHF, USDCAD, and NZDUSD.
Virtually all widely traded ﬁnancial assets can be categorized as risk or safe haven (or safety) assets. Basically, risk assets are those that rise in times of optimism and evidence of accelerating growth, like stocks, industrial commodities, real estate, and so on. In contrast, safety assets appreciate in times of pessimism and fears of slowing growth, like investment-grade bonds. As noted above, there are also two basic types of currencies: risk and safe haven (or safety) currencies. Those that tend to move up or down with other risk assets like stocks, and move in the opposite direction of safe-haven assets like bonds, are referred to as risk currencies. Those that move in the same direction as safe-haven assets and in the opposite direction of risk assets are called safe-haven currencies. Again, here’s how the major currencies rank on the risk spectrum:
In the next forex for beginners courses, you will learn more about these. Understanding this distinction is critical for understanding and anticipating currency pair movements. For now, just know that the distinction exists, that there are risk and safe haven (or safety) currencies.
Beware: Again, This labeling has nothing to do with the quality of a currency as a store of value. It refers only to how these currencies and pairs behave relative to other asset types.
Continue reading for more information or start trading the most liquid currency pairs in the real market conditions. Use code WELCOME20 at registration to get a FREE $20 welcome bonus.
The cross currency pairs, or crosses, are pairs of major currencies that don’t include the USD. By removing the USD’s direct inﬂuence, the cross currencies reveal much about other currencies’ strength. Though most aren’t as liquid as the majors, as the below figure shows, the most popular Euro crosses are equally liquid. For example, below are more widely traded that some of the majors:
EUR/JPY EUR/GBP GBP/JPY
The figure below shows a rough breakdown of the forex trading volume by currency pair.
Studying the cross-currency pairs of a given currency can provide insights about its real strength or weakness. Because any given currency’s most widely traded pair is usually the one including the USD, the relative strength of the USD can obscure a currency’s true health. Indeed, when trading the major currencies, the basic choice is whether to be bullish or bearish on the USD and then just decide which other currency to best trade against it. Because the crosses don’t directly involve the USD, they:
Purer Plays on Currency Strength. For example, if great news comes out that is bullish for the GBP, but the USD is strong that day, the GBPUSD might not move much. Buying (going long) the GBPJPY or GBPNZD could be a more proﬁtable way to play GBP strength. The Internet is a good source for more information on currency crosses.
Because the EURUSD pair alone accounts for approximately 28 percent percent of all forex trade, a weaker USD automatically drives up demand for the EUR and vice versa. That’s because for every three to four Euros bought, a USD is sold and vice versa. Thus, the EUR and USD push each other in opposite directions like children on a seesaw. Its relative strength versus the USD helped it appear steady.
However, if you looked at certain EUR crosses like the EURJPY or EURCHF, you’d have seen that:
Since there are only just a few traders interested in Forex exotic pairs, they tend to be very volatile. It is therefore not uncommon to see huge shifts in currency strength in mere hours, and that makes them risky. Nevertheless, these huge shifts also present excellent forex trading opportunities and fast profits. Just think of them as for how cryptocurrencies also have extremely high volatility.
Before you just jump right in and begin trading these Forex exotic pairs, there are a few things you will need to consider. Based on those factors, then can you pick some reliable Forex exotic pairs to trade.
The Swedish Krona
According to the Bank for International Settlements (BIS), the krona is among the most heavily traded Forex exotic pairs, beating the New Zealand dollar and the Mexican peso. The main reason behind the rise and popularity of the krona is its general stability. Sweden itself is considered among the most stable economies worldwide, receiving a triple-A rating from the big three credit rating agencies. This economic stability means that the krona itself doesn’t suffer extreme volatility. The Swedish krona, therefore, makes for an excellent option among other Forex exotic pairs.
The Chinese Yuan/Renminbi
The size of the Chinese economy automatically places the yuan among the best Forex exotic pairs. China is a driver of economic growth, and changes in the economy itself can make for excellent trading opportunities. Appearing as the 8th most traded currency worldwide, its popularity is also on the rise. The Yuan is a great option for Forex exotic pairs traders because it generates strong long-term trends. Consider the general uptrend in the yuan’s strength due to the growing Chinese economy. The main reason is that, as a result of its economic size, the yuan becomes a major player in the global Forex Market, capable of setting long-term trends. Thanks to this, the yuan is wonderful for swing traders and long-term traders who hold on to positions for weeks and months. The only problem is that there may not be many Forex brokers who offer the USD/CNY among Forex exotic pairs.
The Mexican Peso
Although the Swedish krona may be more stable than the peso, there is a lot more volatility in the latter. Changes in weather across the year, global commodity prices, economic policies and even political events all affect the peso significantly. Due to this, the peso can provide a lot of trading opportunities throughout the year. Whereas the Chinese yuan is great for long-term investors, the peso can generate huge currency fluctuations in just days. Besides, there are more Forex brokers that offer the peso among Forex exotic pairs as there are who do the yuan.
The exotic currency pairs are those comprised of at least one emerging market currency. Though these can be proﬁtable given the growth in some emerging market economies, they are less liquid and should be avoided until one is proﬁtable with the more liquid pairs and then is proﬁtable with these on practice accounts.
Understanding the types of forex currency pairs is important, but if you want some help, sign-up and a dedicated trainer will provide you step-by-step guidance to get started. Start trading and notice how the forex currency pairs work with a FREE $20 welcome bonus. Use code WELCOME20 at registration.