How to choose currency pairs?
In Forex, everything revolves around the currency pairs, which are in fact nothing more than quotations of value of one against the other. There are more than a couple of currency pairs you could trade, but the most important ones, also know as the Majors are USD, EUR, GBP, YEN, Swiss franc, Canadian and Australian dollar. These currencies are more liquid, meaning that they are traded more often and in higher volumes, and as a result, the spreads are lower in their case.
It is crucial for traders to aim for narrow spreads and this includes choosing the right currency pair and broker. As far as the broker is concerned, he will try to present you with bigger spreads, but fortunately the competition is very strong and he will have to lower hi demands. Once the problem of choosing the best broker is solved, you should direct your attention to the currency pair itself and trade the one with the smallest spread.
Two or three pipes is the right value and you should focus on the more liquid pairs which can provide you with these type of narrow spreads. Liquidity depends on the number of sellers and buyers that are trading the currency pair at a give time, with the more of them being engaged in transaction, the more liquid the pair will be. The Majors rank high on that list and among them the USD/EUR, also known as the Fiber, will produce the lowest spreads, which are naturally, the easiest to beat.
The pips themselves are very important because you wouldn’t want to accept a big immediate loss that will make it impossible to recover and will, in the best case scenario, generate small profits. Equally important is the stability of the currency pair, so unless you are planning on scalping the market, the major currency pairs are once again the recommended choice. There are occasions during news releases when the spreads increase greatly and when an outside event affects a currency, the pair itself will be affected.
A stable and liquid currency pair will usually have the US dollar included in it, and if you associate it with another strong currency such as the EUR of GBP, you will have a solid pair. Oscillations are less significant and thanks to the lower spreads, even an increase of a couple of pips can generate the profits you were counting on.