Do You Know Which Are The Best Currencies To Trade?

By Stephen Todd

Are certain currencies better to trade than others? The answer is yes and there are several points to consider when choosing the best currencies to trade.

Perhaps the most important consideration is the volume and liquidity of the currency traded.

The reason this is so important is so that you will be able to exit positions quickly to lock in profits and just as importantly, cut losing trades quickly and keep losses to a minimum.

The most actively traded currencies against the dollar are:

· The Euro

· British Pound

· Swiss Franc

· Japanese Yen

All traders should consider these four currencies.

If you are a long term trend follower, a day trader, make your own trades or use a currency trading system all of these offer great liquidity, good trends (for long term position holders) and short term price spikes for day traders.

While many traders simply focus on the big three currencies there are many other currencies that offer good diversification from the majors.

When trading a basket of currencies, they offer the opportunity for traders to reduce risk and increase capital gains by spreading the risk, two good currencies for this are:

The Australian and Canadian Dollar

Short term or day traders should not consider these currencies, as they are not as liquid as the big three, but they to offer profits that traders can lock into, from some great long-term trends.

Personality Traits

While anything can happen in the future, we have tried to give a brief personality of each currency and the advantages of trading it, based upon past performance:

British Pound

Thinner volume than the Euro or Japanese yen, means that short term trading should be done selectively, but this market is more suited to long term trend following. Thin volumes and low open interest can lead to exaggerated intraday moves and price spikes.

Euro

Any trader trading currencies should trade the euro. Good volume, high open interest and great long term trends, in addition good volatility is present for day traders and its recent status as a safe haven currency, means it is suitable for all traders.

Japanese Yen

The Yen offers fantastic long-term trends and offers some excellent volatility for day traders. Its slightly more erratic short-term price spikes than the euro, make it a currency that can produce more “false” signals than the euro, but generally, it is a great currency to trade. Like the euro volume and open interest is high.

Swiss Franc

In recent years the Swiss economy has become more integrated with Europe’s and the currency has a higher correlation to the euro, but it still represents a currency with great long term trends making it suitable for long term position traders. Like the British pound, volumes are not as high as the euro or yen and day trading conditions are not so good.

Australian Dollar

Quite thin volumes and large price spikes occur in Australian dollar, but it does offer good long-term trends and a diversification away from the major currencies.

Canadian Dollar

The Canadian Dollar is very similar to the Australian dollar. It offers good long-term trends and a diversification away from the major currencies; again, it is suitable for long-term trend followers and not day traders.

There is no best currency to trade, as the best currency is subjective and depends on method used to trade and investors risk tolerance etc.

We have really based our view of best currencies to trade on volume, liquidity and trending nature and we would say the following:

The Best Currency to Trade:

All traders should consider the Yen and Euro. If we had to pick just one, we would be in favor of the euro.

You should always consider the Swiss Franc and British Pound – if you are trading a basket of currencies, but you should also consider the Australian and Canadian dollar.

While traders often neglect the Australian and Canadian dollar, they offer an important advantage in terms of diversification.

Diversification enable currency traders to spread risk and this can increase overall capital gains and help reduce risk and volatility.

So, with regard to best currencies start with euro and yen and add other currencies in for diversification and reduction of risk.

Article Source: http://EzineArticles.com/?expert=Stephen_Todd

Australian CFD Trading Myths Exposed

Mainstream brokers have felt threatened by CFDs since they first appeared in Australia around 2002. Discount brokers especially were quite vocal in their initial opposition to CFDs until they realised what a tour de force CFDs were proving to be for retail investors in accessing the market.

CFD providers were offering trading platforms which had functionality well in excess of anything the discount share brokers were (and still are) offering, and generally for free when many brokers were charging significant amounts for similar features

The biggest thorn in the discount brokers’ sides was the cut-price brokerage charged by CFD providers: most minimum dealing rates start at around $10 a transaction; around half the price of Commsec’s best rate and up to one-third of Etrade’s. The retail trading and investing public finally had a choice – and they flocked to CFDs.

The two main players in the early days of Australia’s CFD industry were of course CMC Markets, who held an initial dominant market share of the burgeoning market, and IG Markets, who has recently overtaken their old rival as the most used CFD provider in Australia. Each offered an “over the counter” product where traders were trading with and (effectively in many circumstances) against their CFD provider.

This structure is a “market maker” model where the CFD provider defines all parameters of the trade. History shows that the rise of one CFD provider, and the relative fall of the other, may come down to how each dealt with this important responsibility; that is, the decision to take the other side of the client’s trade or not…

Discount share brokers were quick to realise how lucrative the CFD market was and wanted in on the action. But rather than join forces with either of the CMC-IG duopoly (make no mistake, they considered it), the brokers chose to embrace an Australian Securities Exchange (ASX) “listed CFD” alternative (also known as exchange traded CFDs).

The ASX had also vehemently opposed CFDs initially because they were market made, arguing that an exchange model would be more open and transparent. But ironically, when the ASX realised that market markers were integral to the process of exchange traded CFDs, they ended up with a product also reliant on market makers; the pricing of the ASX’s exchange traded CFDs are 100% beholden to the market makers and their discretion.

The ASX alternative has since languished on a relative basis and the vast majority of CFD industry experts have labelled them a poor interpretation of what CFDs are supposed to be to investors; offering broad-based, easy and cheap access to the world’s markets.

So presently we have the ASX’s exchange listed CFD market, which is supported by the large discount brokers and also anointed with ASIC approval in its latest review, and the incumbent CFD market makers. Remember, both models are market made. Traders are going to have to pay their pound of flesh to trade either way. In fact, the market makers in the exchange traded version of CFDs mirror the exchange traded options (ETOs) market makers, traded on the ASX’s options exchange. Anyone who has traded ASX options will know that these instruments come at a price. Exchange traded or not…

Traders should know that the market makers who are employed to facilitate ASX’s CFDs are large banking and financial services institutions staffed with experienced professional traders. Retail investors are therefore trading in direct opposition to these firms, which have an obvious and distinct advantage. As one would naturally expect, market makers don’t work for charitable organisations and most can be relied upon to put themselves before the retail investor.

The alternative, the common over-the-counter market made model for CFDs, has been unfairly tarnished in much recent commentary. Yet the main criticisms of this model don’t stand up to basic analysis. At least one CFD provider, IG Markets, offers Guaranteed Market Prices. Thus IG guarantees that for ASX listed equities their clients will always trade at the underlying market price. This means that whilst you are in effect trading with a market maker, they are bound to reflect exactly the prices on the ASX.

This approach contradicts the unscrupulous measures claimed by most mainstream brokers and the press regarding over-the-counter offerings. In fact, this particular market made approach is far superior to the exchange traded model, because not even ASX exchange traded CFDs can offer guaranteed market prices.

Unfortunately a mature analysis on how CFDs actually work has been missing. Instead of rational debate, some sections of the press have found it easier to push emotional buttons than to report the cold hard facts and educate punters about CFDs; only a few specialised investment publications seem to bother with the finer details of the products. Most media has over-exaggerated the risks of CFDs, arbitrarily labelling them “high-risk”. Yet, with a little research and a calm and objective head, this could not be further from the truth.

CFDs aren’t evil; they’re just another trading product, with intrinsic opportunities and risks. They won’t evaporate your life savings at the push of a button unless you are ignorant to their risks and good trading practice in general. There aren’t any victims of CFD trading, just those who make bad trading decisions and as a direct result, lose their money – the same scenario which causes traders and investors to lose money on shares, options, futures, warrants and a host of other financial products.

About the Author

Carl is currently the Head of Education at Australian Stock Report. Carl has delivered presentations on trading and investing to over 20,000 people throughout Australia and New Zealand and has helped countless clients to improve their trading outcomes. He also writes the long running and popular ‘Terms of Trade’ column in the finance section of Melbourne’s Saturday Herald Sun newspaper.

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