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If you are starting out and learning how to trade and wondering how to determine which currency pair is best for you to trade, you will want to read this article. We will explain some of the key points you need to be aware when selecting which currency pair to trade, such as the spread, when it is active and the potential for profits. After you have finished reading this article, you will be able to avoid choosing a currency that you may have thought is a good one to trade but on closer inspection you find does not have the greatest potential for profits.

You may think that choosing the actual currency to trade is a simple matter after deciding to learn forex trading. Some people will naturally choose the currency they feel most comfortable with, which is often that of their own country. For example if you live in Australia, you may want to start trading the Australian dollar. It is important though to know the factors that make a currency attractive to trade.

Spread

The first factor to consider is the spread. The spread is the difference between the price to buy and the price to sell a currency. For example, if you are looking at the American Dollar / Euro USD / EUR spread, the price to buy one Euro in March 2009 is around USD1.36485. If you then want to sell the one Euro you would get 1.36470. This difference is the spread, and this means that in order to profit, you will need the currency to move in the correct direction, and in excess of the spread. The USD / EUR currency pair has what is called a 'tight' spread, meaning that the spread is small. If we look at another currency pair, for example the American Dollar and Thai Baht USD / THB, the buying and selling prices are 35.295 / 35.395, a much larger spread than the USD / EUR. In this case, you will need it to make a much large move just to cover the cost of buying and selling.

When is the currency active?

Currency pairs are active at different times. Although the forex market is open 24 hours a day, trading is generally carried out in three trading sessions. The trading day opens with the Asian session, then the European sessions opens with trading centered in London and finally the U.S session opens with traders in New York. A currency pair such as the Australian Dollar / Japanese Yen AUD / JPY is generally more active in the Asian session and quieter in the U.S session. The USD / EUR is most active when the European and U.S sessions overlap.

Does the Currency move?

To profit from trading forex, the currency pair has to move. Regardless of whether it moves up or down, it needs to move for you to make a profit. Some currencies may have greater potential to move than others. For example, over the period from July 2008 to March 2009, the USD/THB moved from around 33 Baht to the USD to 35 Baht. That is a move of less than 10%. In contrast, the USD/EUR currency pair has moved from 1.61 Euro to the Dollar in July 2008 to 1.26 Euro. That is a move of around 25% over the same period.

Now you should understand that it is not a simple matter to choose a currency to trade. The objective of trading forex is to make profits, and that is only possible when you consider the spread, trade when the currency is active and has some movement.