In last week’s article I stepped you through the process of placing an FX trade. This week I’d like to take a look at the wide variety of currency pairs that are available to trade and also help you choose which currencies to include in your trading.

I’ll start by listing the major currency pairs and their relevant codes for those using ProfitSource or HUBB Investor software.

For FX codes in ProfitSource and HUBB Investor, you need 6 letters, the first two of which are always FX. 

The next four letters are just two lots of two letter codes, comparing one currency to another. For example, FXADUS means 1 Australian Dollar buys x US Dollars.

Codes for the major currencies are:

AD = Aussie Dollar
BP = British Pound
CD = Canadian Dollar
EU = Euro (note the difference from the futures)
JY = Japanese Yen
SF = Swiss Franc
NZ = New Zealand Dollar
US = US Dollar

For example, the Australian Dollar Japanese Yen cross rate would be FXADJY.

For FX Trading, refer to the table below:

Code Position Size Margin Tick Size Tick Value
FXADUS $A10,000 100 Australian Dollars 0.0001 1 US Dollar
FXBPUS £10,000 100 Pounds 0.0001 1 US Dollar
FXCDUS $C10,000 100 Canadian Dollars 0.0001 1 US Dollar
FXEUUS €10,000 100 Euros 0.0001 1 US Dollar
FXUSJY $US10,000 100 US Dollars 0.01 100 Yen
FXUSSF $US10,000 100 US Dollars 0.0001 1 Swiss Franc
FXADJY $A10,000 100 Australian Dollars 0.01 100 Yen
FXEUBP €10,000 100 Euros 0.0001 1 Pound
FXADNZ $A10,000 100 Australian Dollars 0.0001 1 NZ Dollar

Though there are plenty of other currencies not listed (like the Mexican Peso or the UAE Dirham), but those listed above are the most heavily traded currency pairs. Keep in mind that some of these may not be heavily traded (if at all) in the future!

Traders who specialise in particular markets tend to be more successful than those who trade a wide variety of markets. So what issues should you consider when choosing which currencies to trade?

  1. Volume.

Make sure the market you are trading has plenty of volume, so you don’t get stuck with something you can’t sell later. All of the major currencies have more than enough volume for an individual trader. If you try to trade two minor currencies, you may find the volume drops off.

  1. Ranges.

Open a chart for the currency you wish to trade and check whether it moves in a wide range. If there is too little volatility or movement, there may not be enough opportunity to profit.

Last year, the US Dollar/Japanese Yen (FXUSJY) was confined to a predominantly narrow, sideways range, which provided very little opportunity for trend traders to make money. This is shown in Chart 1 below:

Chart 1

click chart for more detail
click to enlarge

The US Dollar/Yen is historically a strongly trending currency but the second half of 2011 was a time to steer clear of this market.

  1. Pick Currencies that move in different cycles.

I have found over many years of trading that the US Dollar/Yen will tend to go its own way (and in its own sweet time) compared to the other major currency pairs. This is a good one to watch if you are following more than one currency, though at times it can be challenging to trade. Contrast this with the Euro/US Dollar and Swiss Franc/US Dollar pairs, as illustrated in Chart 2 below:

Chart 2

click chart for more detail
click to enlarge

Chart 2 shows the Euro chart overlaid with the Swiss Franc chart. Note that the pattern of the two charts is often very similar. If you were only going to trade two currencies, you probably wouldn’t choose these two together, as you will find that if one of them goes sideways, the other will often follow, leaving you with no trading opportunities.

  1. Currencies you have an affinity for

If you find you are excited about trading a particular currency, this is a good sign the currency is for you. I know of a trader who has no Japanese heritage and has never been to Japan but who was fascinated by Japan and decided to trade the Yen. I was not surprised when he did very well out of it.

  1. Currencies that you ‘clash with

Legendary Wall Street Trader’, W.D. Gann spoke about stocks that are your enemies. These were stocks he could never make money from and eventually left alone. It may seem a little strange but just like there are people with whom you may clash, so too are there financial markets that may not be suited to your personality. If you find a market consistently ‘kicking you out’, or maybe just reaching your stop loss, perhaps you should look for markets that will suit you better.

Choosing a currency (or currencies) in which to specialise or trade can feel like a big decision but remember that the first one you choose may not be the one you end up with. However, you will learn a lot from the process and be better able to choose the right market the next time around.

Sounds almost like a relationship, doesn’t it...?

Be Prepared!

Mathew Barnes