Are certain currencies better to trade than others? The answer is yes and there are several points to consider when choosing the best currencies to trade. Perhaps the most important consideration is the volume and liquidity of the currency traded. The reason this is so important is so that you will be able to exit positions quickly to lock in profits and just as importantly, cut losing trades quickly and keep losses to a minimum. The most actively traded currencies against the dollar are: The Euro
British Pound
Swiss Franc
Japanese Yen All traders should consider these four currencies. If you are a long term trend follower, a day trader, make your own trades or use a currency trading system all of these offer great liquidity, good trends (for long term position holders) and short term price spikes for day traders. While many traders simply focus on the big three currencies there are many other currencies that offer good diversification from the majors. When trading a basket of currencies, they offer the opportunity for traders to reduce risk and increase capital gains by spreading the risk, two good currencies for this are: The Australian and Canadian Dollar Short term or day traders should not consider these currencies, as they are not as liquid as the big three, but they to offer profits that traders can lock into, from some great long-term trends. Personality Traits While anything can happen in the future, we have tried to give a brief personality of each currency and the advantages of trading it, based upon past performance: British Pound Thinner volume than the Euro or Japanese yen, means that short term trading should be done selectively, but this market is more suited to long term trend following. Thin volumes and low open interest can lead to exaggerated intraday moves and price spikes. Euro Any trader trading currencies should trade the euro. Good volume, high open interest and great long term trends, in addition good volatility is present for day traders and its recent status as a safe haven currency, means it is suitable for all traders. Japanese Yen The Yen offers fantastic long-term trends and offers some excellent volatility for day traders. Its slightly more erratic short-term price spikes than the euro, make it a currency that can produce more false signals than the euro, but generally, it is a great currency to trade. Like the euro volume and open interest is high. Swiss Franc In recent years the Swiss economy has become more integrated with Europes and the currency has a higher correlation to the euro, but it still represents a currency with great long term trends making it suitable for long term position traders. Like the British pound, volumes are not as high as the euro or yen and day trading conditions are not so good. Australian Dollar Quite thin volumes and large price spikes occur in Australian dollar, but it does offer good long-term trends and a diversification away from the major currencies. Canadian Dollar The Canadian Dollar is very similar to the Australian dollar. It offers good long-term trends and a diversification away from the major currencies; again, it is suitable for long-term trend followers and not day traders. There is no best currency to trade, as the best currency is subjective and depends on method used to trade and investors risk tolerance etc. We have really based our view of best currencies to trade on volume, liquidity and trending nature and we would say the following: The Best Currency to Trade: All traders should consider the Yen and Euro. If we had to pick just one, we would be in favor of the euro. You should always consider the Swiss Franc and British Pound - if you are trading a basket of currencies, but you should also consider the Australian and Canadian dollar. While traders often neglect the Australian and Canadian dollar, they offer an important advantage in terms of diversification. Diversification enable currency traders to spread risk and this can increase overall capital gains and help reduce risk and volatility. So, with regard to best currencies start with euro and yen and add other currencies in for diversification and reduction of risk. |
