The Forex market is very volatile and is subject to either upward swings or downward movements just like the stock market. However, the concept of Forex trading signal helps regulate Forex currency trading and forecasts. Forex signals are basically suggestions for entering trade on certain currency pairs usually at a specific price and time. Signal pairings are generated by either human analysts (Forex experts) or are automated by Forex software. Because Forex signals are timely in nature, they are usually communicated to traders through email, tweets, websites, SMS and even RSS among other immediate methods.
These signals are supplied by service providers who will help you choose the best signal pairings to invest and trade in. A larger percentage of trading signals tend to lean toward the major currencies because they are traded actively which automatically gives you a greater opportunity to yield more gain. These providers also benefit in the process. As much as different Forex currency trading systems offer innumerable opportunities, as a trader you have to understand the risks because market forces are at play in the Forex industry.
Popular Currency Pairings
The most traded currency pairs in the world are called the Majors and involve currencies such as Euro, US dollar, Japanese Yen, Pound Sterling, Canadian dollar, Swiss franc and Australian dollar. The most popular currency pairing is the Euro against the US dollar denoted as EUR/USD. This means that 1 Euro is exchanged for approximately 1.25 US dollars. In this pair, the EUR is the base currency while the USD is the counter currency.
The Most Risky Pairing
The most risky signal pairings are usually currencies that fluctuate such that sudden spikes may ruin your trade because they reach stop levels before swinging the other way. If such currency pairs are considered, Japanese Yen is the most risky when paired as EUR/JPY or USD/JPY. Still, the most risky currency pairs can be the most profitable simply because they have the biggest spread in the Forex market.
The Less Risky Pairing (Most Profitable)
The best signal pairings are considered the less risky because they hardly fluctuate. EUR/USD is usually seen as the most stable as it has the lowest spread among all the currency pairs. This is because in a single day, such a pair can move more than 100 pips and can also change its trend very suddenly. The reason for this comes from the fact that the two currencies (Euro and US dollar) involve the two biggest economies in the world which are subject to abrupt economic conditions.
Choosing the most profitable currency pair also depends on how you want to trade. If you are a day trader, focus on shorter time frames (only a few hours) by sticking to a single currency pair. This means that you will be confined to currencies that have fewer movements with low spread and liquidity preferably (EUR/USD). Still, you can trade in USD/JPY or GBP/USD.
Most day traders also prefer GBP/JPY because though it has a higher spread than other major currencies, it moves in a large scale. EUR/JPY currency pairing can also benefit you as a day trader. However, if you are a swing trader (who trades for longer time frames) you don’t have to be limited to any specific currency pairing.
Key Determining Factors
In Forex currency trading, the position on offer on a given trade is also an important factor you should consider. Risks on trades will determine how much you are willing to spend. Sometimes you can yield higher gains on smaller traders with higher margins instead of larger trades with lower margins. This is where companies that offer signal pairings service come into play.
Avoid Forex Fraudsters
The Forex market is highly competitive which helps create an ideal platform where large signal companies can move in and claim a large market share. Though most of these signal companies adopt good business practices, excessive competition exposes the market to unscrupulous firms who are out to scam investors.
Therefore, if you are interested in Forex currency trading research thoroughly about companies that provide Forex signal services and find out whether they are genuine. Since you are out to make a profit, reliable signal providers will guide you on which direction you should take by helping you choose the best signal pairings. However, remember that all pairs (the least and the most popular) have a certain degree of risk.