Most Profitable Currency Pair

What is the most profitable currency pair to trade these days as the news is full of the European debt crisis, a real estate bubble in China, and the USA printing money to buy US Treasuries? The BRICS group (Brazil, Russia, India, China, South Africa) are using their new economic clout to have their say in the economic choices of the day. But none of these nations has totally dodged the effects of the 2008 market crash and recession. Where does the Forex trader who speculates on foreign currency rates in the currency markets of today put his money in search of profits? We have a few ideas about what conditions create the most profitable currency pair.

Trading and Not Investing

Beginning currency traders need to remind themselves that they are not investing in any given currency. If you are a trader you are not necessarily looking for where to put your money. They are trading one currency versus another. The best trading results are commonly not seen during times of economic health but in times of economic stress. The issue for the currency trader is to spot which currency will rise or fall versus another and to do so before the market does. Then the issue is when trade back to the original currency or back to the trader’s currency of choice for holding long term assets.

Volatility Leads to Profits

Because Forex traders make money when one currency rises or falls versus another they look for volatile situations such as the current Euro Zone economic contraction. The European economy may well head into a recession, again, as strict austerity measures are taking away jobs and leading to anger among voters. The most profitable currency pair will see a lot of volatility.

Volume and Liquidity Help

Online currency traders typically use technical analysis as a guide in trading. Technical analysis tools are statistical in nature and function best when the data pool is large and changes are relatively continuous. That is to say there is a lot of money being traded and there are not gaps in the market as prices move smoothly up and down. If you are looking for this situation you will want to look for the most profitable currency pair among the major currency pairs. These are the US dollar (USD), the Euro (EUR), the Yen (YEN), Swiss franc (CHF), Pound Sterling (GBP), Canadian dollar (CAD), and Australian dollar (AUD). Underlying issues when trading the group are US dollar deflation, European debt, Japanese recovery after the earthquake and tsunami, and China’s first trade deficit in a decade.

Knowledge of the Fundamentals

Many currency traders simply pick a major currency pair such as the EUR USD, USD YEN, or EUR CHF. These pairs offer liquidity, volume, and sufficient volatility in today’s Forex markets. But, what about trading the Real, Ruble, Rupee, Rand, or Yuan? First of all these currencies trade primarily versus the US dollar. In fact, in order to trade the vast majority of minor currencies one trades the first versus the dollar and the dollar versus the second currency. Thus if one sees the Real, Ruble, Rupee, Rand, or Yuan as part of the most profitable currency pair he will be trading it against the US dollar. Those trading these currencies will typically be people who have a very clear picture of the economies, politics, and monetary policies of the nations involved. If you are truly in the know one of these may be part of the best currency pair to trade.