Best Currency Pairs to Trade and Invest

December 17, 2020 - Петр Мазайло

Trading in currencies is a notoriously reliable practice, that’s true. Currencies overall are safer and more predictable than any other assets on a wide market – they are intentionally designed to not suffer sharp falls or rises. And yet, you still can draw profit by trading in various currencies.

They naturally come in pairs – one being sold, one being bought – and considering there are hundreds upon hundreds of just physical currencies, the number of possible trading pairs is near immeasurable. So, how does one choose the top Forex pairs for their investments?

It is a decently-sized topic, even without covering the crypto, but this article will try to cover a lot of substantial factors as well as mention several most reasonable trading pairs ready for the picking.

Remember that there are really no answers to what currency is the best for everyone, because times change and so do trading styles. But there are several factors by which you can deduce what currency is the best for you specifically.

Factors of choice

There are many notable factors of choice for the currencies to invest. The best currencies for your personal trading style aren’t necessarily the most popular on the market, though EUR, USD, GBP and others tend to be more liquid. And that, by the way, is one of the top factors.

  • Liquidity

Liquidity basically reflects how on-demand a certain currency is. The more liquid types of money sell faster and they are easier to obtain. It translates directly in how fast you can conduct your deals and, therefore, how accurate your actions on the market can be.

To understand exactly how liquid a currency is, one should look at the spreads. A spread is a difference between the lowest offered price and the highest demanded price of the asset on market. If an asset doesn’t attract too many deals, the spreads will be wider. The narrower they get, the more deals there are, and that means more demand.

Currencies are also assets, and they correspond to this logic. Although, it’s worth noting that:

  1. Currencies generally have tight spreads, so you’ll have to look at very small distinctions
  2. Spread widening may also happen due to volatility. In this case, it means sudden inflation surges or other surprise changes. You shouldn’t neglect such events to have a clear understanding of the currency’s well-being

And on that note let’s talk about volatility.

  • Risk

Some currencies suffer more risks than others. Certain events on the financial arena of an issuer country or even the entire world can cause cost changes. Such potential risks are represented by the metric called market risk, which in turn is reflected by the aforementioned volatility.

All assets suffer from volatility, and that’s why many investors choose a technique called the news trading. News traders keep a close watch on the recent and upcoming events that may cause short or maybe even long-term changes on the market. It’s smart to anticipate risks this way, but dabbling in risk-ridden currencies is another thing completely.

Currencies that suffer a lot of these events very frequently (inflation surges, value crashes, inadequate policy) can’t be easily predicted. That’s why you shouldn’t try to invest into them, whatever the perks. Sudden financial risks usually arise in financially-insecure countries.

Such countries can be distinguished by such parameters as: high inflation, low GDP per capita, high unemployment and high poverty. It’s also reasonable to research the major recent and future events of the country (not only on the financial front) to see what can change the value of the currency and how similar events did so in the past.

Why not pick the popular currencies?

You can pick one of the more popular currencies right off the bat. However, it’s more sensible to do several things in preparation:

  1. Pick several currencies to both have some backup savings and to be able to invest in several currencies at the same time – currencies can retain their price for a long time
  2. Do some research of each of the picked currencies to see their inflation rates, their relative liquidity, as well as the economic situation in their respective countries

But even then, valuable and popular currencies won’t necessarily give you profit. It’s true that they are astoundingly liquid in comparison to the less known currencies, like Saudi riyal, for instance. However, even such low-liquidity currencies can bring you profit if you know how to trade news and connect dots correctly.

After all, nobody says you should invest into Forex in long term. You can pick a right moment and make profit from some currency that suddenly started to do well. For instance, if oil prices start to rise, it won’t be unwise to invest into the currencies that draw a lot of their value from oil.

But again, you’ll have to do some research. If the currency suffers terribly from inflation or if the country itself suffers from unrest, it’ll be hard to predict the movement accurately.

Granted, you’ll still have to hold onto a sum of USD, so don’t abandon the titans of the market so easily.

What about crypto?

You shouldn’t forget about cryptocurrency, including crypto tokens. These are as much currencies as physical money. There are two major distinctions:

  1. Most crypto coins aren’t issued by anyone, and therefore can suffer from lack of control;
  2. The value of such coins isn’t backed by anything other than the demand on the market

It also means that you won’t be able to read the inflation or all the other economical metrics that all the physical currencies have. You’ll still be able to deduce volatility – by trading news or deducing the current volatility index yourself – though it’ll be a bit harder.

Still, crypto obeys all the same rules on the market, including being traded in pairs. These coins usually change their value a lot more frequently than usual currencies, but it also depends on the currency of your choice. So, do your research.

As implied, you’ll still have to look at how liquid the currency is, and how risky it is to trade it. The liquidity of some crypto coins – namely, Bitcoin and Ethereum – can even exceed the liquidity of some physical currencies, but given that there are countless coins besides them, you’ll have to stick to several dozen of the most valuable coins if you want to make any substantial profit in the short term.

The list of the most reliable crypto trading consists of: Ethereum, Bitcoin Cash, Ripple, Litecoin, Dogecoin, Ethereum Classic, Stellar, EOS, Tether and several more. Bitcoin is absent because the BTC market is oversaturated, and investing into it is conjugated with high risks, as well as high profits, making it mostly only a choice for professionals.

The better choice to start for a beginner is Ethereum. It’s a relatively liquid coin with high-enough value and reliable movement.

The examples of reliable physical currencies

Currency choice largely depends on the current situation, as mentioned many times over. However, there are several currencies that retain the high-enough liquidity and rarely change suddenly. Their values depend on several very easy-to-grasp aspects or even commodities, and that gives you an easy time predicting the movement, as well as good sport doing that.

Though, naturally, it won’t give you crazy profits, because crazy profits come from large currencies, like USD, EUR, JPY or GBP. These will also provide you with high risks. If you want to know which currencies are the best in this high tier, you can scroll to the next chapter.

However, since risk – or its manifestation, the volatility – is the quality that you should realistically avoid while choosing the currency to invest, you should be given a chance to see several examples of low-risk currencies, even if they aren’t as high-profit.

  • NZD – New Zealand dollar

New Zealand dollar generally has similar value to Australian and American dollars – both high-tier currencies – but at the same time suffers narrower price swings and more stability. Therefore, you can expect NZD to mirror AUD movements, but with lesser risk.

  • CHF – Swiss franc

Franc is a fairly valuable currency that stands in almost 1:1 ratio to the American dollar for several years now. The currency is very predictable and should be traded in large quantities because otherwise the profits will be insubstantial.

  • NOK – Norwegian krone

The price of NOK largely reflects the value of the Norwegian oil. Although it’s not the only thing it depends on. Regardless, it’s a perfect factor by which you can monitor and anticipate the movements.

In summary

You aren’t mandated to use any of these currencies above. You can find your own currency – what you have to remember is that you need liquid currencies with low market risks and each factor of price prediction.

But if you’re looking for something more classic and risky, you can use this template for the top-tier currencies, but take into consideration that there are very few easily-predictable currencies. In the end, the best currency is the most easily-read one – so, try AUD or CAD for starters.

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