Choosing the right currency pairs in the binary options market is not an easy task. Market conditions, trading experiences, and personal preferences are the main factors deciding which currency pairs to trade.
In this blog, we will provide you an in-depth analysis about how to choose great currency pairs to trade. Furthermore, you can find our detailed suggestions and tips to have the best currency pairs in your portfolio. Do not forget to bookmark and share with your friends if it is valuable!
What is currency pair
The currency pair refers to one currency’s value being measured by the other’s value. In the binary trading market, a currency pair will have two parts. The first listed currency is defined as the base currency while the second one is called quote currency.
A currency pair will show traders how much of the quote currency is needed to purchase one unit of the base currency. Additionally, all currencies will be abbreviated based on the ISO currency code. It means they will be illustrated by three letters of code that are agreed in the international market. For instance, the U.S dollar will be abbreviated as USD.
Understanding the currency pair
The currency pair rate will continuously change due to various economic as well as political factors. To explain, the local financial market can affect one currency value that results in currency pair ratio fluctuations. Furthermore, one currency will always prevail over the other.
In order to calculate the currency pair rate, traders will use the value of the base currency. For example, the value of EUR/USD is 1.3045. It means the Euro (EUR) is the base currency and one Euro will trade for 1.3045 Dollars.
Major currency pair
Depending on brokers, nearly any nation’s currency can be traded in the binary options market. Among those countries, America plays a significant role as the biggest financial center in the world. As a result, all of the primary currency pairs will have the USD.
Currency pair that can be traded in IQ Option
IQ Option allows investors to trade more than 50 currency pairs. Moreover, investors can trade 24/7 with various choices at different periods. To explain, it is due to different opening and closing times of the four biggest stock exchanges (London, Sydney, Tokyo, and New York).
Herein, you will see some common currency pairs in the table:
| CURRENCY PAIR | COUNTRIES | TRADER’S SPEAK |
| EUR/USD | Eurozone / United States | “euro dollar” |
| USD/JPY | United States / Japan | “dollar yen” |
| GBP/USD | United Kingdom / United States | “pound dollar” |
| USD/CHF | United States/ Switzerland | “dollar swissy” |
| USD/CAD | United States / Canada | “dollar loonie” |
| AUD/USD | Australia / United States | “aussie dollar” |
| NZD/USD | New Zealand / United States | “kiwi dollar” |
On the other hand, there are other currency pairs that do not involve the USD. Instead, these currency pairs will trade against the EUR, JPY, or GBP. In other words, they are called cross-currency pairs.
Minors and Exotic pairs
Despite some strong currencies mentioned above, there are also new currencies that can be traded in the binary options market, especially in the IQ Option platform. Some of them are:
- NOK – Norway
- DKK – Danish
- MXN – Mexico
- PLN – Polish
- TRY – Turkish
- ZAR – South Africa
- SDG – Singapore
- ILS – Israel
- SEK – Swedish
What affects the currency pair rate?
Regardless of technical analysis, investors should understand the fundamental factors that affect currency pair rates. From that, you can choose the best time to make an order.
There are four elements that can influence a currency’s value:
1. Interest rates
About eight times a year (every six weeks), the central bank will fix the interest rate. This action aims to make the local currency become stronger and indirectly affects the currency price.
For example, the interest rates of USD and VND are both 3%. However, the American central bank announces a new interest rate of 4%. Thus, investors who seek a higher yield will switch investments from VND to USD. As a result, the demand in USD will increase which results in the currency pair rates involving USD will be affected.
2. Economic data
The economic releases can help investors anticipate the currency’s future value. Some of the important information affecting currency rates are inflation rate (CPI), employment data, gross domestic product (GDP), purchasing manager index (PMI), retail sales, etc.
3. Politics
There are many political activities that can create insecurity and uncertainty for traders in the binary options market. For example, trade wars, elections, corruption scandals, and changes in policies can generate an instability of a currency price.
4. Volatility
Firstly, the market volatility can be affected by different opening and closing times of stock exchanges. Secondly, traders are psychologically affected due to the three factors above that result in low trading activities. Consequently, these two reasons will lead to higher or lower buying currencies demand and influence the pair rates.
How to choose the best currency pair to trade
Should you trade many currency pairs?
If you are a new trader, it is highly recommended that you should not trade too many currency pairs at once. Although brokers provide many trading options for investors, choosing several currency pairs to focus on is considered a better strategy.
To explain, there are two reasons you should aim to invest in a few currency pairs. Firstly, it will be harder to manage many currency pairs. To explain, traders need to pay high attention to the price actions as well as the formation of each candlestick. Based on that, investors can correctly implement technical analysis to anticipate the market movements.
However, if speculators manage too many currency pairs, their concentration on the market fluctuations will be distracted. As a result, it will lead to inaccurate market predictions and more potential losses. Besides that, investors may miss good trading opportunities while monitoring other currency pairs.
Secondly, traders will face higher risks of losing and bankruptcy. To explain, the market of cross-currency and minor pairs does not often show predictable market trends. Hence, it will be time-consuming to test and understand each currency pair. In addition, losing in one pair can cause a Domino effect in trading other pairs. It means traders can suffer from a losing streak due to consecutive failures in different pairs.
As a result, it is advisable for speculators to choose a few currency pairs to trade in the binary options market.
How many pairs should you trade?
For inexperienced investors, the recommended number of currency pairs to trade is 3. Moreover, traders should choose popular and familiar currencies to trade. For example, you can choose EUR, USD, AUD, JPY, CAD, CHF, GBP, and NZD.
It will take time to test, practice, and understand these currencies. However, there are many economic theories as well as articles about them. Thus, you can shorten your research time and quickly get used to the market conditions.
Another point you should put in your note is choosing six different currencies. It means three pairs will not coincide with any currency in both base and quote currency.
To explain, if there is any duplication, it will cause fluctuations in more than one pair. For example, you have two currency pairs A/B and C/A. Once the A/B increases, mathematically, the C/A will decrease. However, analyzing both pairs in this situation can create wrong trades. As a result, we highly recommend traders choose different currencies to pair and trade.
Example of choosing great currency pairs
Depending on personal trading strategies and interest, each investor will have their own choice of currency pair. Herein, you can see some examples of choosing tactically currency pairs. In order to select the right pairs, you should first know the opening time of different stock exchanges.
Read more: When is the best time to trade binary options?
In the morning, when the Asian and Australian stock exchanges open, you can choose the EUR/USD and the AUD/JPY or the AUD/USD and the EUR/JPY. To explain, these currency pair rates are quite stable and easy to analyze. Additionally, you can decide based on their daily profit or payout rate. However, the payout rate in the morning is normally lower than other periods in a day (lower than 80%).
In the afternoon, when the European and American stock exchanges open, you will have more options to choose. In detail, some suggested pairs are EUR/USD, EUR/JPY, AUD/JPY, CAD/CHF, GBP/CHF, GBP/AUD, GBP/JPY, USD/JPY, EUR/AUD, and AUD/USD. For instance, you can pick out three pairs EUR/USD, AUD/JPY, and CAD/CHF to trade. Importantly, you have six different currencies in your pocket!
Currency pair trading tips
To summarize, here are some tips to choose and trade currency pairs in the binary options market.
1. Learn your currency pair inside out
In binary trading, understanding the market structure as well as movements plays a significant role in your profit. Thus, traders should choose a specific amount of currencies to frequently analyze the market, candlesticks models, price actions, and various indicators. Furthermore, investors should practice trading strategies in the demo account to optimize success. On the other hand, speculators can use binary tools such as [TB] MT2IQOPTION to support and minimize emotional decisions while trading.
2. Choose familiar currencies to trade
Familiar currencies such as USD, JPY, GBP, or EUR will be more stable than minor currencies. Furthermore, they will have more academic resources to research and shorten your testing.
3. The more experiences you have, the more currency pairs you can manage
For starters, the recommended number of currency pairs is three. Moreover, these currencies should not be duplicated to minimize the effects of market fluctuation. Besides that, you can change your currency pairs based on the different opening times of various stock exchanges.
For more experienced traders, they can increase the number of currency pairs as they desire. However, it is advisable that maintaining a fixed number of currency pairs will give traders better insights. Therefore, they can follow the market closely and optimize winning percentages.
4. Less mental strain
Managing many currency pairs at once will generate a lot of pressure for traders. It also means you need to do more analysis and stay more focused on the market. As a result, you should not trade 24 hours to eliminate stress.
Instead, spending time with your family on the weekend will be a good idea. It is also a good time to plan your strategies for the next week.
Besides that, be patient and stick with your tactics to correctly test the market. Additionally, you can use demo accounts or binary tools to support your predictions.
Conclusion
Through this blog, we hope that traders will understand more about currency pairs and how they work. Moreover, in-depth explanations of factors affecting currency pair rates are also well illustrated herein. Importantly, we show you how to choose the best currency pairs to trade in the binary options market.
All recommendations and tips are researched carefully and based on our trading experiences. Therefore, you can bookmark and share with your friends if it helps you to optimize your trading strategy. Good luck!