Currency Currency
by Michael on February 24th, 2021

What remain to be the most profitable currency pairs?

The trading market is huge and it carried many secrets as well as many factors, that need to be considered while trading. While there are a lot of them including teh ones to keep in mind, there are two aspects of foreign exchange markets that any would-be trader needs to bear in mind.

The first and perhaps teh most important thing is that trading is not for the sweethearts and for teh faint-hearted people. If you are any of those, please stay away from trading unless you are ready for your heart to be broken. The second factor is that forex trading is a zero-sum game. In this kind of game, every winner must be matched with a loser. So there is a pair of winner-loser every time teh trade happens.

Just have a moment and imagine that all equity markets work this way. As shares in Ford edged up, those in general Motors would have to fail by corresponds amount. Or if teh shares of Pepsi edged p, teh shares of Coca-Cola would be observed in decline. Yet, in this case, it is way more possible to have teh vise versa pair. Though thankfully, this does not work this way, and it is quite possible for all stocks to rise and fall all at once. This has happened and not once. Yet usually, when all stocks fail at once, those days are remembered by teh history.

No second place

In the forex market, there is no second place available. This is simply due to teh fact that the currencies are priced in relation to each other and not by anything else. This is the case even when someone is simply buying foreign currency in order to go on holiday because they are trading their own cash for that of another jurisdiction.

The main and teh most important thing for the trader is to, first of all, identify the currency pair that is most likely to bring a lot of profit and then to take a position on the likely performance of the two currencies against each other. It is quite simple in theory and in practice, it looks like this when the euro is likely to appreciate again the USD, the trader of long EUR/short USD would benefit the most, as teh position is moving towards the profit of teh currency pair.

Though, take into consideration that unless the EUR/USD rate settles into teh premature route, highly unlikely given the dynamic and restless nature of forex markets this trade can provide be one of the following two things: it can be whether right or wrong. This is the brutal nature of the market, and the second place holder does not get prized.

Before even thinking about teh most profitable currency pairs you can find in the market, it is an excellent idea to establish an overview of teh whole foreign exchange market as a first step. All in all, there are more than 200 currencies in the whole world, and other than those issued by closed societies, all of them are available for trading.

Direct “cross rates”

While there is a number of different currencies, this does not mean that all of them are equal. Indeed, they fall into four categories, and understanding of which is teh biggest success of the trade. The first category is just one currency, which is the US dollar. This is the anchor currency for the world monetary system. Everything stands and is measured by teh USD, so it is no surprise that the USD would deserve teh extra space for itself in one of two dimensions. Famously it is that that two-thirds of global trade is dollar-denominated and 90% of those trades are cleared in New York. This makes teh American currency very different from any other. It just stands out.

Next, come the other major currencies, those that underpin the reserves of teh International Monetary Fund, also known as IMF. These are teh EUR, YEN, and teh Chinese Yuan as well as going hand in hand with Sterling. There is the third category as well, which is more of an under the category. It comprises developed-nation currency such as Canadian, Australian, and New Zealand dollar, teh Swiss Franc, and all teh rest. Talking in jargon, those are the currencies for which cross-rates are available.

What this means is that a direct exchange rate is quoted on the forex market between each of these currencies, as, of course, it is for currencies in the first two categories. Should, for example, you wish to check the rate between the Canadian dollar and the Norwegian Krone, it’s there on the screen.

This is the main difference between the third and the fourth category. Here you will also search in vain at your local bureau de change or even major forex market, for cross rates, the Tanzanian shilling or the Honduran lempira.

Instead, traders would need to access such denominations via a middle currency, swapping their money into this go-between denomination at current exchange rates and then using it to buy the currency they seek.

It is all about jungle laws

In almost every single case, the middle currency is teh dollar, which is bringing us full circle to the overarching role of the US unit. For the adventurous, there may be somethings appealing about in the fourth category as well, with its semi-romantic suggestions of backroom money chargers in Middle Eastern bazars. Though we are not looking for any romance and love all we are looking for is profit, si it will be in the first three categories, that we will find the most profitable currency pair to be traded. If you are Tarzan looking for Jane, then the fourth category might be the choice for you, though not in any other case.

While choosing the third category over any other, we all need to remember that at all times that there is usually a trade-off between liquidity on one hand and profitability on the other hand. For example, the most liquid forex pair in the world is almost certainly USD/EUR.

Does that make it the most profitable pair? Almost certainly not. True, the price will fluctuate second-by-second as the great waves of supply and demand for the two giant currencies ebb and flow, but the chances are that seasoned professionals, using algorithmic trading, will snap up the profit generated by these price movements.

But this should not be read as a dismissal of the dollar as one half of a pair. Quite the opposite.

It is because of its solidity and its market dominance that the US currency can be seen as indispensable in constructing the most profitable pairs in forex. The trader can study a wealth of data covering previous trading patterns and take a view as to the likely next moves.

So if the dollar is on one side of the pair, what should be on the other? Profitable opportunities are likely to abound in pairing the dollar with currencies issued by advanced economies that are affected by different factors to those driving the US dollar.

One example would be the Australian dollar, still very much impacted by commodity-price movements. Another, from the other side of the world, is the Swiss franc, the “hardest” money in the world but, by deliberate policy, not a reserve currency.

Always remember, however, it is a jungle out there, one in which careful study of the currency pairs concerned is key to surviving and thriving.


By Michael

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