Translated from Russian by Google Translate
25 Сентябрь 2008

Criteria for selecting the currency pair

The choice of currency pairs - holding a painful and important. In fact: it seemed, that the complexity of choosing the currency pair? Choose any and bidding on it. But in fact, the trader will watch the various surprises, as well as various currency pairs behave in different ways in different situations, hence the need to carefully analyze the behavior of market-based instruments in different situations.


The experience of generations Traders shows that the choice of currency pair should be guided by purely personal preferences. It is said that before the trade must necessarily be run on the virtual trading account, and only then identified with a particular currency pair.

There is a group of traders who prefer to play on the currency pair based on their geographical location. In other words, Americans and Europeans have played in the EUR / USD, Canadians - for CAD / CHF, etc. But what is this criterion of choice of a currency pair. Unambiguously say about it is very difficult, but perhaps someone easier to operate the national currency of the country where the trader. For example, a single party Forex market may be sufficiently equipped with knowledge of fundamental analysis, in a particular currency pair, and someone, perhaps, believes his criterion of choice - a sense of patriotism, etc.

But if the judge logically, is to participate in forex trading is no matter at what currency pair to trade. It is important to another - how well you’ll do it. And geographical location is nothing to do with it. It is guided by purely personal, inherent in your thoughts. But we in turn try to compile all the parameters of choice of currency pairs to trade.

Criteria for selecting the currency pair:

1. Liquidity currency pair.
Why we started with liquidity? Yes, because liquidity in the current global financial crisis is almost the most important issue concerning not only the foreign exchange market, but also in stock. And what affect liquidity on a currency pair? It even affected. First and foremost the relationship is seen in spread, more specifically - in its size.

Once all the world’s currency and stock markets nakryla wave crisis, the spreads on various currency pairs started to grow as mushrooms after rain. Many uninformed market participants across the accused brokers and broker. But the problem is actually more global than it seems to be at the very beginning. The issue is that the spread is a reflection of liquidity in the market as a whole and not a single bank liquidity.

The relationship is traced in that the more players involved in spekulyatsionnyh transactions in the market, the greater liquidity of the currency pair. This happens because when large numbers of players entering the market much more funding, in addition, increased demand and that in itself creates greater liquidity.

Why draw attention to the liquidity in selecting the currency pair? Because it has a different effect on the price of supply and demand (Bid and Ask) in different time zones. In those time zones, for example, in London, where there is a very good liquidity Spread much lower than in the time zone where there is the worst liquidity. This is mainly concerns the Asian region.

Currently, the currency market the most common currency pair, as well as a pair, which has the lowest rate of spread is a pair of EUR / USD. But today, to judge the reliability of the couple seems pointless exercise. In the pre-crisis, the strategic behavior of the U.S. under analytics planned in accordance with the policies pursued by the White House.

In the first rule of George W. Bush ’s main focus, as we see it, has been on foreign policy during the second presidential term, emphasis is put on domestic politics. As a result, been reduced tax rates for U.S. financial institutions, resulting in a greater infusion of investment on their part in the American economy. In addition, the growth of the U.S. dollar accompanied by policies pursued by the Fed, which has repeatedly raised interest rates, which in turn contributed to outflow of funds from Europe, bringing the U.S. dollar strengthened vis-à-vis other currencies.

Today, we have seen that there is, namely, the global volatility. Suffice it to recall that for a couple of EUR / USD in recent times could observe increased spreads with a standard strip in pipsa 3 to 5 pips, which can not compel think about what’s happening in the market disturbances. It is all the above developments and constitute the set of rules which must guide the choice of a currency pair - namely liquidity.

2. Volatility of currency pairs. This is the most functional in the choice of currency pairs. This is particularly true in our view, traders prefer to trade Intrada. All the matter is that there is great volatility in the currency pair in the short time interval from the trader is an excellent opportunity for significant gains in a short period of time.

But if there is a great volatility of a currency pair correspondingly increased and the level of risk when trading. Everything also depends on the size of the deposit trader. In order to withstand greater price volatility need to have substantial deposits, and especially the long-term trade. It is for this reason you should correctly match the level of risk in transactions on currency pairs with high volatility.

If you look at the market for an experienced trader’s eyes, we can see the feasibility of trading on various currency pairs. But increasingly, this option trade has the most experienced traders. This happens because when a good understanding of the issues in terms of fundamental analysis there is some correlation between currency pairs. It is for this reason, trading one currency pair, we can draw conclusions about where the price will go in a different currency pairs.

On the other hand, simultaneous trading on several currency pairs acting negatively on the trader, has blurred vision due to the need for simultaneous analysis of several currency pairs. And here are meant nevzaimosvyazannye currency pairs. It is for this reason you should carefully select currency pairs in a way that they have linkages with other currency pairs and already building on this, make the appropriate conclusions. If you give specific examples, we can give such couples as EUR / USD and USD / CHF. Why these couples? Because in this case, strong leadership and direction were EUR USD. The Swiss franc, in this case only serves as a kind of derivative of the euro.

When choosing an aggressive type of trade is choose the so-called cross-rates. In the most general terms cross-rate - is derived from the dollar. For example, a pair GBP / JPY is calculated based on the current course of the British pound and yen against the USD. How useful cross-rates, is that they are able to quickly identify changes in the major currencies. In addition, the total that combines cross-training - is the large spread, sometimes reaching 15 points. On the one hand, trading cross-rates seems rather difficult and risky task, on the other - with the right approach can be seen cross-rates, as the possibility of obtaining large profits.

Below is a list of currency pairs, the so-called cross-rates:

GBP / JPY, EUR / JPY, CHF / JPY, EUR / GBP, EUR / CHF, AUD / CAD.

In conclusion, that the choice of currency pairs to trade has played a pivotal, as well as for successful trade is well enough to explore the history, behavior in a particular market situation, a single currency pair. And this takes time. So, after examining a couple, and having spent so N-nnoe amount of time do not always want to start all over again, starting to explore other currency pairs. It is therefore a matter of choice marketing tool was quite true at all times.