Forex Trading: Choosing the Currency Pair

It has been established that Forex trading is the closest as it can get to the concept of perfect competition. This is because sellers and buyers of currencies can freely trade twenty four hours a day without regulators intervening. The investors can choose a currency pair that they believe could give the most profit. Since all currencies of the world are being traded in the market, it becomes difficult to find the optimal currency pairing.

Currency pairs

The US Dollar and Euro pairing is evidently the most popular choice because it has been proven that it is less volatile with a small spread. However, there are many more pairings that may not be popular but can also give substantial profit when traded. The nagging question is what pairing is optimal to get the maximum profit. Here is where the element of uncertainty comes into play. It has to be understood that although the Forex market is robust and stable, the currencies being traded are affected by the economic and political situations in their respective countries. For instance, a country that is plagued with financial woes would find its currency value in a very volatile state. This then makes trading them a little risky and it would entail serious monitoring just to know when to unload at the right time.

Factors to consider

Choosing the best Forex currency pair depends on several factors including exchange rates, economic climate, regional situation, business trends, and investors’ outlook. Add to this the individual investors’ aversion to risk. If the investor is not a risk taker, he or she would opt for the safest pairing.

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