As a Forex trader in Nigeria, your success starts by choosing the best currency pairs with a trading strategy that suits that pair. With the right currency pair choosen, you’re bound to make a huge financial gain. On the other hand, selecting the wrong currency pair combination could result in your financial loss.
What is a Currency Pair?
Currency pair is a quotation of two distinct currencies, where one currency’s value is quoted against the other. A currency pair’s base currency is the first stated currency, while its quote currency is the second one. Currency pairs compare the value of one currency against another, i.e., the base currency versus the quote currency. It indicates how much of the quote currency you need to purchase one unit of the base currency. Currencies are denoted by a three-letter alphabet, e.g., the U.S. dollar is denoted by USD.
The daily volume of trades for each currency pair is used in classifying the pair into Major, Minor, and Exotic Pairs. Major Currency Pairs: The exact list of major currency pairs varies, however; they always include the traditional four major currencies EUR, USD, JPY, and GBP.
- EUR/USD–Euro vs. U.S. Dollar
- GBP/USD–British pound vs. U.S Dollar
- USD/JPY– U.S. Dollar vs. Japanese yen
- USD/CHF–S. Dollar vs. Swiss franc
- AUD/USD – Australian Dollar vs.U.S. Dollar
- USD/CAD–S. Dollar vs. Canadian Dollar
- NZD/USD – New Zealand Dollar U.S. Dollar
- GBP/EUR– British Pound vs. Euro
- EUR/CHF– Euro vs. Swiss Franc
- EUR/JPY – Euro vs. Japanese yen
Minor Currency Pairs: The minor currency pairs with the highest volume of trading are those in which the individual currencies are also majors (such as EUR/GBP, GBP/JPY, EUR/CHF). Some examples of crosses are:
- EUR/GBP – Euro vs. British pound
- GBP/JPY – British pound Japanese yen
- EUR/CHF – Euro vs. Swiss Franc
- NZD/JPY – New Zealand Dollar Japanese yen
- EUR/AUD – Euro vs. Australian Dollar
- CHF/JPY – Swiss Franc vs. Japanese yen
- EUR/JPY – Euro vs. Japanese yen
Exotic Pairs: Exotic currency pairs are made by combining a major currency pair with a currency from an emerging market, such as Mexico, Russia, Brazil, or South Africa. Examples of such pairs include:
- USD/RUB – U.S. Dollar vs. Russian Rubel
- USD/HKD – U.S. Dollar vs. Hong Kong Dollar
- USD/BRL – U.S. Dollar vs. Brazilian Real
- USD/ZAR – U.S. Dollar vs. South African Rand
- AUD/NOK – Australian Dollar vs. Norwegian Krone
- AUD/PLN – Australian Dollar vs. Poland złoty
- EUR/CZK – Euro vs. Czech Koruna
- EUR/HUF – Euro vs. Hungarian Forint
- GBP/SGD – British Pounds vs.Singapore Dollar
- MXN/JPY –Mexican Peso vs. Japanese yen
- TRY/JPY – Turkish Lira vs. Japanese yen
8 Best currency pairs to trade in Nigeria
The following currency pairs account for more than 85% of all traded pairs in Nigeria: EUR/USD, USD/JPY, GBP/USD, AUD/USD, NZD/USD, USD/CAD, USD/CHF, and GBP/JPY.
The first best currency pairs to trade in Nigeria is EUR/USD.The quote currency is the USD, and the currency pair shows how many USD are needed to buy one Euro, which is the base currency. EUR/USD represents the two largest economies in the world and has become the most traded currency pair globally. The currency pair moves an average of 100 pips daily, and the best time to trade this pair is when the London and New York trading sessions overlap.
Trading costs (spreads) for EUR/USD is tight, which is highly favorable for traders. Because there are many transactions on this pair, the market tends to be liquid allowing more money to be made with this pair. With this pair, you will get numerous entry opportunities.
This is the second most traded currency pair globally. This currency pair is the benchmark to determine the health of the Asian economy. The quote currency is the JPY, and the currency pair shows how many JPY are needed to buy one USD, which is the base currency. The best time to trade USD/JPY is between 12:00 and 15:00 GMT (1 pm to 4 pm Nigerian time) and this is because both the London and New York sessions move the largest trading volumes and they are both open within these hours despite the fact that the Tokyo market session is closed.
Another one of the best currency pairs to trade in Nigeria is GBP/USD.This currency pair is one of the oldest and most widely traded currency pair in the world. The quote currency is the USD, and the currency pair shows how many USD are needed to buy one GBP, which is the base currency. It moves an average of 160 pips per day. One thing really common with the way this pair moves is that it forms double tops and bottoms (M and W patterns).
You can implement a good double top and double bottom strategy on this pair when it is trending. This pair is best traded between 1:00 PM and 5:00 PM (Nigerian Time) due to the fact that this is the time of day with the highest trading activity when largeswift changes are visible and many traders profit the most.
Another widely traded currency pair in Nigeria is USD/CHF, aka “Swissie”. The Swiss Franc is the last Franc remaining in circulation in Europe. CHF is the short form of “Confoederatio Helvetica” and it represents the economy of the neutral state located in the middle of Europe.
The quote currency is the CHF, and the currency pair shows how many CHF are needed to buy one USD which is the base currency. The best time to trade USD/CHF is also when the London and New York sessions are in a collision, specifically between 1:00 PM to 5:00 PM Nigerian time. Due to its significant trading volume and liquidity, this currency pair’s spreads are lower than those of minor and exotic currency pairs.
AUD/USD aka “Aussie”, accounts for 6% of total transaction volume and is the 4th most liquid currency in the world. The quote currency is the USD, and the currency pair shows how many USD are needed to buy one AUD, which is the base currency. When this pair trends, it usually continues for a long period of time, which is why it is very suitable for swing trading. However, day traders also profit from it.
The Australian dollar closely correlates with commodity prices because Australia is one of the most resource-rich nations in the world due to the abundance of metals, coal, diamonds, cattle, and wool. You also need to know that this pair is risky because the average true range is usually high, so you need to make sure your stop loss is large enough to accommodate its fluctuation without get hunt. The best time to trade this pair is also when the London and New York markets overlap.
In this currency pair, the quote currency is the CAD, and the currency pair shows how many CAD are needed to buy one USD, which is the base currency.USD/CAD aka “Loonie” is also among the best currency pairs to trade in Nigeria. Itis a commodity currency because it is mostly affected by commodities (oil, gas, and timber).
Oil has a huge impact on this currency pair because Canada is the fourth-largest oil producer in the world. This currency pair is a crucial sign of the general health of the Canadian economy and currency. A collapse in the price of oil results in a reduction in the value of CAD against the USD. Hence, the USD/CAD will rise in value because the amount of CAD used to purchase 1 USD will increase. This currency pair has an average spread of 2.0 pips.
In this currency pair, aka “Kiwi,” the quote currency is the USD, and the currency pair shows how many USD are needed to buy one NZD, which is the base currency. Although this currency pair is not among the largest traded in the world, it still holds significant value because it is profitable. When this pair trends, it tends to keep trending for a long time, hence it is suitable for swing trading just like AUD/USD.
The success of New Zealand’s export market may have an impact on the exchange rate between the US dollar and the New Zealand dollar. An increase in dairy and agricultural prices on a worldwide scale might boost the economy and affect the currency’s value. New Zealand’s tourism industry is also a major economic driver that influences its currency.
GBP/JPY aka “cross pair”. The quote currency is the JPY, and the currency pair shows how many JPY are needed to buy one GBP, which is the base currency.The Pound is the fourth most traded currency in the world, while the Japanese Yen is third (2016) and this makes the pair of a significant value.
This currency pair is very volatile; hence you need to ensure that you give your stop loss a large room. When this currency pair trends, it tends to keep trending for a long time, hence, it is suitable for swing trading, but day traders can also profit from it. On average, this currency pair can move up to 160 pips a day, and it is mostly traded when the London and New York sessions overlap.
Things to consider when selecting currency pairs to trade in Nigeria
- Determine if the market is trending:
To select the best currency pairs to trade in Nigeria, you need to first determine the market trend. Trends are defined as the overall direction of market movement. The direction of a trend can be determined using trend lines or moving averages (MA) added to your charts. You can determine your overall trend using a higher time frame, such as 4 hours for day trading and weekly or monthly for swing trading. This will give you an idea of where price will be going next, so you can only take trades that are in the direction of the trend.
- Implement a trend trading strategy
The next thing is to check and see whether the pairs in question are compatible with the trading method you want to use. As a forex trader, you should already have a trading strategy, preferably price action, and know how to apply it to that particular pair in a trending market.
For each currency pair, there are a variety of strategy you may employ, but before you trade any pair, you must have a firm grasp of how that pair moves, this is crucial. Some pairs move along a trend forming a double top or double bottom pattern, others move along a trend forming lower highs and lower lows (downtrend).
You must use a sideways trading strategy to trade a sideways market. You set yourself up for failure if you use a trend trading strategy on a pair that is moving sideways.Generally, a trending market is more profitable than a sideways market. So, if your trend trading strategy is solid, stick to it and run from a sideways market.
In your trading strategy, you also need to consider the Average True Range (ATR). ATR iS the average number of pips a pair is likely to move. This can help you in setting your stop loss. If the ATR of a pair is high, then you need to give your stop loss a wider gap to give room for price fluctuation.
As a forex trader, you need to know that the best currency pair to trade in Nigeria is not necessarily the most traded globally, it majorly depends on if you understand how the currency pair moves, if the pair is trending, and if you have a strategy to trade that particular pair, because the same strategy does not work on all currency pairs.
Also, as a beginner forex trader in Nigeria, it is better to focus on only one pair among the best currency pairs to trade in Nigeria,so you can fully grasp how the pair moves and you can add more pairs when you have fully advanced in your forex trading knowledge.
Let us know in the comments what currency pairs you trade, and if you are not trading any yet, let us know what currency pairs you intend to trade.