The Euro is the second largest currency in circulation after the US dollar.It is used by the 16 countries that comprise the Euro zone. Consequently we cannot undermine the fact that the EURUSD is the most traded currency pair and also the most important. It is so important that the movements of the EURUSD often give a direct indication of what is presently going on in the world of finance. It is great for the Newbie to the FOREX market as it often moves at a slower pace compared to other major currencies. It is also negatively correlated to the USDCHF but positively correlated to the GBPUSD.
Basic Features to Know when trading EURUSD
1. It usually has a Bid-Ask spread with many brokers of between 1 and 3 pips.
2. Average daily movement of the pair is 90-100 pips.
3. The best time of trading the pair is during the euro session i.e. between 8 GMT and 17 GMT.
Most Important Factors that affect the quote of the EURUSD pair
1. When trading the EURUSD the most important factor you should know that affects the quote of the pair is the difference in interest rates between the FED and the ECB.
2. Traders should also know that a strengthening dollar leads to a decrease in the EURUSD quote.
3. Direct activities by the FED affect the USD therefore directly affect the pair.
Pros of trading the EURUSD
1. The most important reason and greatest advantage of trading the EURUSD is due to it's vary large liquidity.
2. Being a combination of the two most traded currencies in the USD and the EUR, the EURUSD is the most densely traded currency pair and who wouldn't want to go where everyone goes?
3. The combination of the above factors lead to our third reason being the EURUSD has very tight Bid ask spreads. Bottom fact: you can make a lot of money with the EURUSD but pay minimum commissions and spreads.
4. The pair has a historical correlation with other major pairs like the USDCHF (negative correlation) and the GBPUSD (positive correlation). This means it is easy to confirm analysis of the pair by looking at the movements of other pairs.
Con of trading EURUSD
It is difficult to imagine such a liquid currency with such tight spreads having a trading con. But yes! The EURUSD indeed has one. Volatility. The EURUSD is a very volatile currency. Its volatility comes because it is affected by almost any international event in the world and at any given time it may make unwarranted moves. This huge volatility of the EURUSD means it is indeed riskier to trade compared to some less volatile currencies.
Conclusion
The bottom line is if you have a perfect understanding of the Interest rates movements and FED's activities and also have a good grasp on your technical analysis then trading EURUSD is for you. If you lack any one of these areas the EURUSD market may dazzle you because it has huge volatility and has the tendency to range from time to time.
Day trading works well with EURUSD which usually has low spread. Read more about it on day trading strategies. Also, find out the details of a great broker to trade with at AvaFX review.
No comments:
Post a Comment