Forex is the largest market in the world, that accounts approximately $5.3 trillion a day. At the same time, Forex trading has become an increasingly popular activity which attracts numerous people around the world and what’s more, developing states as well.
Forex trading has numerous features and details that require attention. Currency pair is one of them. Choosing a currency pair is one of the most challenging aspects of Forex trading. You need to focus on the option that will be most beneficial for you in the long term. A lot of traders on the market are interested in what dictates the trading volume of currency pair and there are a number of characteristics to consider.
When we talk about the trading volume, it is directly connected to the popularity of currency pairs – what makes a trader choose a particular pair. There are several indicators.
1. Average daily range
This indicator is very important for trading. Each currency pair moves in a different way and has its own unique tendencies. And not everyone is effective in the strategy a particular trader uses.
To assess the difference between the pairs, traders study the average daily range of their movement. Every day the currency pair moves by a certain number of points. The wider the average daily range, the more active the pair is. Sometimes a currency pair moves in a certain way for several weeks and then returns to its previous range.
According to the recent Oinvest review, which is a decently sized FX brokerage, most companies list dozens of currency pairs, but for some reason, only a few of them have large trading volumes.
Therefore it can’t be said that currency pairs are not being traded because there are no options, there are other reasons associated with them mostly which we will also discuss in this article.
2. Clarity of patterns
When it comes to choosing a currency pair, evaluation of the degree of transparency of the models it forms is necessary. With technical analysis, you should be able to determine which pattern is emerging in relation to a particular currency. And if the currency pair you are working with does not illustrate trends well enough, you will not be able to capitalize on it.
For example, the GBP/USD and JPY/GBP pairs clearly show their patterns. In their case, whenever the market takes direction, it tends to move more than 100 pips before turning the other way.
3. Trading style
The popularity of a currency pair relies on the trading strategy as well. The currency pair should fit well with your unique trading style. There are many different methods that you could potentially use for Forex trading. When choosing a specific strategy and pair, it is necessary to evaluate them for compatibility.
For example, if you are a trader who makes money on minimal swings, you should trade pairs that often move back and forth, such as EUR/CHF and AUD/NZD. If you are a long-term trader, you need to tilt your choice of a currency pair in favour of GBP/USD or GBP/JPY.
4. Volatility
Volatility is a concept that depends on the liquidity of the asset. Low-liquid exotic currency pairs are considered the most volatile, while assets with high liquidity are considered to be low-volatility. Also, any currency pair may experience volatility during periods of important economic news.
If you follow the movement of the price chart for currency pairs during the trading day, then the most volatile pairs are exotic ones. At the same time, the main currency pairs will be the least volatile.
More active pairs should be chosen by traders who have strategies designed for sharp price fluctuations. Most of the participants in the trading process prefer calm assets when working with which there is less chance of a quick loss of the deposit.
5. Maximum activity
The same currency pair can behave differently depending on the trading session. If a trader lives in Europe and works during the day, it is better for him to choose the assets with the highest volatility during the European and American trading sessions. If he is a “night owl”, then he can choose the currency pairs that are active in the Asian trading.
6. Ability to analyze the movement of quotes
The trader must know the peculiarities of the currencies that make up the pair, understand the processes that affect the direction of movement of the asset value.
7. Spread
This is especially important when choosing an asset for scalpers and pipers. The pairing tells you how much of the variable currency equals one unit of the base currency.
Conclusion
We have talked about the main reasons that affect the popularity of currency pairs, therefore increasing trading volume. It is necessary to choose the asset that is completely understandable for the trader. You must know all the features of the currencies included in the pair, understand the principle of its price movement and know the factors affecting the rate.
In addition, the trader must be able to analyze the selected pair. Also, when choosing, the volatility of the asset and the size of the spread charged by the broker when concluding a deal on this currency pair is taken into account.
It is best for beginners to start by trading major pairs. After you learn how to make a profit on these assets, you can switch to USD/CAD, AUD/USD, NZD/USD, when trading which you need to take into account many economic indicators.
When trading in these currency pairs to bring systematic profit, you can move on to work with cross-pairs.
On average, this will take several yeras Only with the acquisition of solid experience can one switch to trade in exotics, oil products and precious metals. It is recommended to trade no more than 1-3 currency pairs at the same time.
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