The most lucrative FX trading pairs - 2020 advantages and disadvantages

The most lucrative FX trading pairs in 2020: majors, minor or exotic? Which currency pair for which strategy? All information at a glance.

In Forex trading, investors speculate on the performance of currencies. Two different currencies are always combined in a pair, so that the development of one currency can be assessed depending on the other currency. Some brokers can only trade the so-called majors, which include the FX pairs EUR / USD, GBP / USD and USD / JPY. With other providers, however, the customer can also speculate on the so-called exotic currency pairs. But which currency pairs promise the best return opportunities? We will answer these and other questions in the following guide:

  • Not every currency pair can be traded with all brokers.
  • The trading fees are often lower with the majors than with the minor 130>
  • Due to the higher variance, higher returns but also higher losses are usually possible with exotic FX pairs.
  • There is no generally applicable "best" trading strategy.

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Trading fees vary between majors and minors

Not only in the Forex broker comparison, cost differences can be determined. The same broker also has different trading fees, depending on which currency pair is being traded.

If the fees are calculated in the form of spreads, these are usually the lowest among the majors. For example, the currency pairs EUR / USD and GBP / USD can be traded with some providers from as little as 0 pips. In contrast, the spreads for the minor are significantly larger, and the particularly rarely traded pairs can sometimes result in high trading costs. Spreads are also relatively high for the increasingly popular cryptocurrencies due to the large variance.

When planning the trading strategy, the costs associated with trading should always be taken into account. However, the fact that the main currency pairs can be traded cheaper does not mean that investors should generally be restricted to them. All that needs to be considered is that investing in an exotic currency pair will ultimately result in more profit for a successful trade, as this will offset the higher fees. Therefore, these forex pairs should only be traded if the investor expects them to offer significantly higher returns. This can be the case under certain circumstances, because due to the greater variance, these FX pairs can lead to significantly larger price changes in a short time.

Cryptocurrencies: The "special" FX trading pairs

Cryptocurrencies are digital currencies, the value of which results exclusively from supply and demand. Unlike the other currencies tradable by brokers, they are not regulated by banks. This means that they are independent and, due to their decentralized administration, are forgery-proof. However, cryptocurrencies also have a particularly high variance, which makes them interesting as a speculative form of investment.

Bitcoin was the first cryptocurrency in 2009, and numerous others followed. Some brokers can trade 20 or more cryptocurrencies today. However, most providers only have the cryptocurrencies with the largest market capitalization available:

  • Bitcoin
  • Ethereum
  • Bitcoin Cash
  • Litecoin
  • Ripple

The cryptocurrencies can usually be traded against the US dollar or the euro. Some brokers also offer currency pairs, which consist of two cryptocurrencies, with Bitcoin usually being the largest cryptocurrency.

Many traders expect quick returns from trading in cryptocurrencies, as there are sometimes large fluctuations and multiplication the value of a currency can take place regularly. However, the correspondingly higher risk when trading cryptocurrencies should also be taken into account. If the trading price does not develop as predicted by the investor, but instead moves strongly in the opposite direction, high losses have to be accepted. To reduce this risk, cryptocurrencies can be traded with a much lower leverage than the regular currency pairs.

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The most lucrative FX trading pairs - 2020 advantages and disadvantages

Risk management: important for every FX trading pair

Forex trading is a highly speculative form of capital investment. Despite extensive analysis options, the course of trading prices can never be predicted exactly. Too many unpredictable factors can cause the price to go differently than the trader predicts. In these situations, losses occur which can be multiplied by the use of levers.

For this reason it is important to follow good risk management, otherwise single wrong decisions can lead to the loss of the entire trading capital, If the selected broker has an obligation to make additional contributions, the loss can go even further and also affect the private assets of the trader. In the worst case, it loses a multiple of the originally invested amount and must file for personal bankruptcy.

Therefore, only a small part of the total capital should be used for each individual trade. With the so-called stop-loss order, the user can already ensure when placing his trade that it is automatically closed at the next possible time in the event of a certain loss. Since the stop loss cannot always take effect reliably in particularly volatile phases, some brokers offer a so-called guaranteed stop loss. Here, the customer cannot lose more money than he specified when placing the order.

In general, the money used for FX trading should always be considered as risk capital. Investors should only invest as much as they can do without problems. Even medium or long-term planned amounts should not be used for trading currencies.

Broad trading strategy or specialization in a few pairs?

In addition to the decision for certain Underlyings also have to ask investors how many FX pairs they want to trade with. Both an intensive specialization as well as a diversified set-up can have advantages and disadvantages:

  • A broader spread lowers the overall risk, since individual losses can often be compensated for by profits elsewhere. The prerequisite for this, however, is that the selected currency pairs are as independent as possible from each other.
  • With a broad trading strategy, more promising trading opportunities can be found. If an investment is currently not sensible for individual currency pairs, the trader can simply switch to other underlyings.
  • By specializing, the trader can acquire more knowledge about individual currencies and apply them accordingly in order to make the best possible trading decisions. This applies in particular to trading strategies based on market analyzes and new trading.
  • Specialized traders, especially those with the minor, can identify trading opportunities through a good knowledge of the market situation that could not be identified by an exclusively technical analysis.

How many currency pairs a trader wants to deal with must be decided individually. Personal preferences as well as the time available and previous knowledge play a role here.

Automated trading can scan significantly more trading prices than would be possible manually. Therefore, broader strategies are often used here. It should be noted, however, that not every Expert Advisor is also suitable for every FX pair.

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The lever: deposit little money, move a lot of money

FX trading pairs become in usually traded leveraged. This allows investors to invest significantly more money than they actually deposited into their trading account. Some brokers offer leverage of 1:30 for the majors. This means that only a small amount has to be deposited as a so-called margin in order to move a comparatively large amount of money on the financial market. As a result, noteworthy returns can be achieved even through small price changes. However, the losses are correspondingly high in the case of unfavorable developments.

For beginners, it is recommended not to first use the maximum available leverage, but only to trade with small leverage. With increasing experience, the leverage can then be increased. Professional traders benefit from high leverage because they can use more money when trading.

The maximum leverage is not the same for all currency pairs offered. Depending on the expected variance, it is higher or lower. Majors such as the FX trading pair EUR / USD can be traded with comparatively high levers. With exotic currency pairs, however, only significantly reduced leverage is usually available. Due to the high variance, cryptocurrencies can only be traded with a maximum leverage of 1: 2 or even without leverage.

If the margin deposited by the trader is no longer sufficient to finance the position, it will become usually closed automatically to avoid negative account balances. In particularly volatile phases, however, this may not be possible. Therefore, it makes sense to choose a broker who does not have to pay additional contributions.

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Automated trading: in principle possible with all FX pairs

More and more traders no longer analyze the trading prices manually, but leave it to automated trading systems that indicate promising trading options or can execute the corresponding trades directly.

The best-known are the so-called Expert Advisors, which operate with the widely used trading platform MetaTrader can be used. Investors can either use ready-made Expert Advisors and thus automatically apply the most common trading strategies or create their own trading systems. These can then be checked for their effectiveness with a so-called back test, in which the algorithm is hypothetically applied to past price movements. Although this does not say anything about the possible success or failure of the Expert Advisor in the future, it is helpful for initial forecasts and the detection of errors.

In general, Expert Advisors can be applied to all currency pairs. However, we recommend a separate test for each currency pair before an Expert Advisor is used in practice. Because the characteristics of the individual underlyings differ, an Expert Advisor may only be suitable for certain FX pairs. To clarify this, you can compare the course of the currency pairs EUR / USD and BTC / USD. At first glance, significant differences become clear here. While the first pair is relatively constant around a certain average, the price of the second pair can also permanently shift significantly in one direction. The variance is also different, which is why an Expert Advisor would have to be adjusted accordingly.

The most lucrative FX trading pairs - 2020 advantages and disadvantages

How to find the right broker

Not every broker offers the same currency pairs. While the classic majors can in principle be traded anywhere, it becomes much more difficult for the exotic to find a provider with whom the desired pairs can be traded.

If an investor would like to trade in rarer FX Specializing in pairs, he must therefore be particularly careful when looking for a suitable broker. In addition to the trading offer, other factors also play a role:

  • Trading fees: What does trading with the desired currency pairs cost?
  • Trading platform: Which software can be used for trading? Is automated trading possible?
  • Customer service: Do customers have a competent contact person if they have any questions or problems? Can this be contacted in German?
  • Security: Is the broker considered serious and is regulated by a recognized supervisory authority?
  • Minimum deposit: How much money do small investors have to invest at least initially?

We tested various brokers in our reviews and of course also took a look at the trading offer. We would like to support our readers in their search for the most suitable provider.

With many brokers, including FXTM, trading can be tested with a demo account without obligation. This way, potential new customers can get a realistic impression without opening an account and deal extensively with the broker's trading offer, fees and various options.

Conclusion: The choice of FX pairs is an individual decision.

Depending on the broker, investors have a more or less large selection of Forex pairs. In addition to the majors tradable by all providers, many brokers can also trade minor, exotic and cryptocurrencies.

Which underlying an investor should choose depends on, among other things, his prior knowledge, his willingness to take risks and his individual preferences from. While the price fluctuations of the majors are usually relatively small, large price changes and jumps are possible with exotic and cryptocurrencies. For this, these underlyings can generally not be traded with as high levers as the more stable majors.

Also in automated trading, attention should be paid to which FX pairs the selected trading system is suitable for. Here, among other things, the usual variance of the underlying plays an important role. It is therefore not advisable to transfer automated strategies applied to individual underlyings to other currency pairs without prior backtesting.

In so-called new trading, the latest news from business and politics is reacted to. Here, too, there are more trading opportunities if the trader is not limited to a few currency pairs. However, it can also be helpful to have extensive expertise in individual currencies.

Ultimately, the decision for or against certain currency pairs rests with the investor himself. Different strategies can be tested with a demo account without financial risk. In this way, users can also familiarize themselves with the characteristic properties of certain FX pairs.

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The most lucrative FX trading pairs - 2020 advantages and disadvantages

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