Choosing a Forex currency pair
for maximum profits

Foreign exchange trading, in general, involves trading of many currencies of the world. The trading is always done in pairs when one currency is bought and the other is sold. For example, you may buy U.S. dollars for Japanese Yen, anticipating that in future, dollars will be more appreciated than Yen.

Most commonly traded currency pairs are US Dollar (USD), Japanese Yen (JPY), Euro (EUR), British Pound (GBP), Canadian Dollar (CAD), Australian Dollar (AUD), and Swiss Franc (CHF)

The chances of profit lie in choosing the right currency pairs. Buying a currency that will have future demand should be a wise move. There are many Forex currency pairs to choose from, but, which pairs should you trade? Choosing a currency pair for trade should be based on ones trading style and trading experience.

Three main types of currency pairs are the majors: EUR/USD, USD/JPY, USD/CHF and GBP/USD; the commodity pairs: USD/CAD, AUD/USD, and NZD/USD; and the currency crosses, where most popular are the EUR/GBP, EUR/JPY and EUR/CHF. If you are new to forex, start with a less volatile pair such as the EUR/USD or EUR/GBP.

Focus on one currency pair at the beginning and try to learn everything about it. In the net, you will find comparison tables, which will guide you to choose a specific currency on the basis of your level of expertise.

The list will also tell you the 30-day daily range, typical spread offered by the brokers, and the type of the currency pair it is–major, commodity, or cross.

There are several factors affecting the rate of exchange between two currencies. It is almost always affected by the supply and demand for a country’s currency in international exchange markets.

If demand for a currency exceeds the supply, the value of that currency will go up. If however, the supply of the same currency exceeds demand, its value will go down.

If interest rates are higher in a country than others, then investors will choose to invest in that country. Economic news regarding interest rates, rate of employment, tax policies etc. affect the exchange rate of certain currencies. Therefore, choosing a currency pair will need study and research on the trend of these factors in the past.

If must be remembered that all these factors affecting the exchange rate are interlinked. If the inflation rate is higher, investors are less likely to prefer the currency even if the interest rates are higher. There are professional analysts who can judge the situation after observing the global scenario.

It is therefore advisable to seek their suggestion while choosing the currency pair for forex trading. There is no substitution for knowledge. So keep yourself informed, and slowly you can learn the thumb rules for choosing a right pair.