How to Choose a Stable Currency Pair

Forex trading is an investment method that involves buying and selling currencies of different countries in the global market, and making profits by taking advantage of changes in currency exchange rates. The basic unit of foreign exchange trading is a currency pair, which is the exchange ratio between two currencies. For example, USD/JPY is a currency pair that indicates how many Japanese yen can be exchanged for one U.S. dollar.

Foreign exchange trading has many advantages, such as large market size, high liquidity, long trading hours, high leverage, etc. But there are also many risks, such as large market fluctuations, leverage amplifying losses, and the impact of political and economic events. Therefore, foreign exchange traders need to have sufficient knowledge and skills to obtain stable profits in this market.

So, how to choose a currency pair with stable returns? Here are a few points for reference:

1. Understand Different Types of Currency Pairs

According to different liquidity and volatility, currency pairs can be divided into major currency pairs, minor currency pairs and exotic currency pairs:

The major currency pairs refer to the seven currency pairs related to the U.S. dollar, namely Euro/U.S. dollar (EUR/USD), British pound/U.S. dollar (GBP/USD), U.S. dollar/Japanese yen (USD/JPY), U.S. dollar/Canadian dollar (USD /CAD), US Dollar/Swiss Franc (USD/CHF), Australian Dollar/USD (AUD/USD) and New Zealand Dollar/USD (NZD/USD). These currency pairs have the highest trading volume, the highest liquidity, and relatively small price movements, making them suitable for beginners and conservatives.

Minor currency pairs refer to combinations between major currencies that do not include the U.S. dollar, such as Euro/Japanese Yen (EUR/JPY), British Pound/Japanese Yen (GBP/JPY), Euro/British Pound (EUR/GBP), etc. These currency pairs have lower trading volume than major currency pairs, lower liquidity, and larger price movements, making them suitable for experienced and risk-takers.

Exotic currency pairs refer to currency pairs related to emerging market countries or regions, such as U.S. dollar/Mexican peso (USD/MXN), U.S. dollar/Turkish lira (USD/TRY), Euro/South African rand (EUR/ZAR), etc. These currency pairs have the smallest trading volume, the poorest liquidity, the most drastic price changes, and are most affected by political and economic events. They are suitable for investors with high risk and high return.

2. Analyze the Fundamentals and Technical Aspects of Currency Pairs

Fundamental analysis refers to judging the value and trend of a currency by studying the economic conditions, political situation, monetary policy and other factors of the country or region where the currency is located. Fundamental analysis can help traders grasp long-term trends and directions, as well as predict the impact of major events.

Technical analysis refers to identifying market rules and patterns by studying historical price data of currency pairs, and using various technical indicators and graphics to predict future price changes. Technical analysis can help traders seize short-term fluctuations and opportunities, as well as set reasonable entry and exit points and risk control strategies.

Generally speaking, fundamental analysis and technical analysis complement each other, and traders should combine the two to formulate their own trading plans and strategies.

3. Choose a Currency Pair That Suits Your Style and Goals

Different currency pairs have different characteristics and behaviors, and traders should choose the currency pair that suits them based on their style and goals. For example:

If you are a long-term investor, you can choose major currency pairs because they are relatively stable and are greatly affected by fundamental factors. You can trade based on long-term trends.

If you are a mid-term investor, you can choose minor currency pairs because they are more active and are greatly affected by technical factors. You can trade based on the mid-term swings.

If you are a short-term investor, you can choose exotic currency pairs, because they are more violent and are greatly affected by unexpected events, and you can trade based on short-term fluctuations.

Of course, these are just general suggestions and not absolute rules. Traders also need to adjust their choices based on their actual situation and market changes.