Is EUR/USD the best currency to trade in forex?
Monday, November 15th, 2010 at
8:04 am
I want to start trading in forex, therefore just want to know which curreny is beneficial at this point of time.
Filed under: Trade market
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The EUR/USD is the most liquid, most traded currency. I’m not sure what you consider to be "best." We tend to trade whatever is moving at the moment.
There are six currency pairs that are deemed the “major currency pairs” in the FOREX market because they account for about 80 percent of FOREX transactions:
1. EUR/USD – Euro/U.S. Dollar
2. GBP/USD – Great British Pound/U.S. Dollar
3. USD/CHF –- U.S. Dollar/Swiss Franc
4. USD/JPY –- U.S. Dollar/Japanese Yen
5. USD/CAD –- U.S. Dollar/Canadian Dollar
6. AUD/USD – Australian Dollar/U.S. Dollar
As you can see, there is a currency on the left and one on the right. The one on the left is referred to as the base, and the one listed on the right is known as the cross. The format, once again, is as follows. BASE/CROSS, or EUR/USD. The EUR is the BASE and the USD is the CROSS.
In the case of your question concerning the EUR/USD pair, it’s simpler to think in terms of being long first. If you are long the pair, you are long the base currency(EUR) and short the cross (USD) simultaneously. Being short would be the reverse of that.
If yo are short the EUR/USD pair, you are short the base currency (EUR – betting it will go down in price, or go down more than the USD), and long the cross currency (USD – betting it will go up in price, or go up more than the EUR).
TERMINOLOGY:
• PIPS- Price Interest Point. This is the smallest unit price for any Foreign Currency.
• LOT- A lot of currency is one denomination for a trade (100K or mini account). This is similar to purchasing one stock or one contract in the futures market.
• LONG to buy
• SHORT to sell
• BID-The price at which you sell
• ASK-The price at which you buy
Price Interest Point – (PIP)
Profits are made in the FOREX by gaining PIPS. A pip is the last digit from the decimal point. This value is 1/100th of a cent. You may now be asking yourself, how do I make money off of 1/100th of a cent? The answer is leverage. The FOREX market is highly leveraged and should be respected. That said, it can also provide for a tremendous return on your investment. The average leverage in the FOREX is 100 to 1. Basically this indicates that for every dollar you invest in a trade you are controlling $100 of value.
Calculated PIP
Calculated PIP – shows the Price Interest Point (PIP) value for the selected currency pair based upon your trading account margin. For example, a standard 1 percent margin trading account controlling $100,000 in currency would show the EUR/USD with a PIP value of 10.
PIP VALUE-Fixed or Floating
FIXED- When the USD is the cross currency (right side of the pair), the PIP value is fixed at $10 in a 100k account.
FOATING- When the USD is the base currency (left side of the pair), the PIP value is based upon the exchange rate of the cross currency (i.e., USD/CAD.). Also, the PIP value is floating when the pair consists of foreign currencies (i.e., EUR/ GBP).
LOT
A lot is the normal unit of trading in the FOREX market. Trades are made in lot increments, similar to share increments in the stock market.
Standard (or 100k) FOREX account- has a 100:1 leverage ratio
1 LOT= $1,000 investment= ratio leveraged 100 to 1, which = $100,000 in buying power.
Mini FOREX account- has a 200:1 leverage ratio
1 LOT= $50 investment= ratio leveraged 200 to 1, which = $10,000 in buying power.
TRADING HOURS (EST)
• Trades 24 hours a day, 6 days a week. The market is open from Sunday at 5pm EST to Friday at 4pm EST.
EUR/USD has certainly been the all time favorite currency pair of forex traders. It is also expected to yield good results in the coming weeks. I am a forex trader and my favorite currency pair is EUR/USD and USD/JPY.
As a newbie i would suggest that you start with the most traded currency fiirst i.e. EUR/USD. Once you are done furnishing your skills you can try another pairs as well.
If you need any further assistance you can use Yahoo Answers and the below blogs as well for reference.
While the EUR-USD is the most popular currency to trade, it does not necessarily mean that it is the best pari to trade. It all depends on the kind of trading strategy that you employ in you trading. Like for example, if your strategy requires a relatively calm pair which does not make huge movements in the market, then you would go for the EUR-GBP. Or if your trading strategy is better suited for really volatile currency paris, then you would certainly prefer the GBP-JPY which makes huge movements in its prices.
Study the currency pairs and analyze which ones fit into your trading strategy. Each currency pair has its own "personality" and tendencies with its price movements.
To start with, EUR/USD is a good currency pair. It has good volatility and plenty of liquidity. So, It’s a great choice for beginners.
The best currency are those which you know about there trends. where the move up or down.
Yes and no
The EUR/USD is the most traded currency pair in Forex accounting for a third of all daily trading volume. This means that you pay the least in spreads or broker fees which is a big deal.
However the range on the EUR/USD is on the low side and this does not make it the best currency pair to trade in Forex.
A good trading pair is the GBP/JPY which has the largest daily trading range providing greater opportunity to profit.
Good luck!