What Currency Pair is the Most Difficult to Trade?

#OPINIONLEADER#

If you were to look into any Forex trading guide, you’d get a recommendation to trade on major currency pairs only — at least until you get comfortable with trading and see some profits. However, not many of them explain what is wrong with the more exotic currency pairs and why exactly you should never trade on them.

This guide is going to do exactly that — take each “undesirable” currency pair, explain what makes it so bad, and show the successful trading strategies for it, if there are any.

Exotic Pairs

Exotic currency pairs are characterized by having low liquidity and little interest of the traders outside of the countries involved. The central banks dominate those markets, and thus they are often extremely stable — which is not a good thing for trading.

EUR/CHF

The Euro (EUR) is a currency of the European Union; however, Switzerland does not utilize it. Instead, they have their own Swiss Franc (CHF), which used to act as a haven currency. However, when it comes to trading, it does not quite work.

The main problem with EUR/CHF is its long periods of stability followed by sudden jumps in value. Some EUR/CHF trades can last for months only to suddenly close with 2 000 pips of difference. Lately, the situation improved with EUR being involved in Brexit, which brought some much-needed volatility to the market.

EUR/CHF monthly chart. As you can see, the long periods of relative stability are followed by sudden drops or increases in value.

Overall, EUR/CHF is not suited for scalping and other high-volatility short-term strategies. Price Action patterns aren’t truly applicable either since the patterns on the weekly and monthly timeframes are much less defined.

As of right now, there isn’t a single recommended way of trading on EUR/CHF. The most viable one so far is trend-trading — catching onto a new trend at its beginning and jumping off before it ends. It’s not a particularly profitable endeavor and does carry some risk, but if you want to trade EUR/CHF — it’s the only reliable solution.

EUR/TRY

The current Turkish government is far from competent, as evident by all the political scandals and populistic positions taken in the last two years. So it’s not a huge surprise that the Turkish lira is kind off all over the place. Up until January 2018, the currency pair was very much downward bound, but the weakening EUR helped TYR retake positions for a couple of months. And yet, from September onwards, the TYR has been correcting back down.

EUR/TRY looks relatively fine on larger timeframes, but on the smaller ones, you see a lot of erratic, unpredictable movement.

The biggest problem with EUR/TRY is the lack of central direction. The market does not correspond to the known patterns since any moment another piece of news may drop that will change the picture. This makes strategies based on Price Action practically unusable.

However, there are ways to trade on EUR/TRY. More straightforward scalping strategies, like “lazy river” are useful, and there are price movements suitable for trend-trading. However, the erratic nature of the market makes them very risky.

Derivative Pairs

EUR/USD and other major currencies are being exchanged directly — however, that is not always the case. There is a whole array of currency pairs that use an intermediary currency due to the lack of liquidity.

This makes the derivative pairs depend on two economics, but three. For example, when USD is being highly volatile, the GBP/JPY will become unstable too — even though, on the first glance, it is not directly affected. This gives derivative pairs a lot of unhealthy volatility and makes them very difficult to trade.

Despite JPY being a relatively stable currency over the last year, the GBP/JPY chart is somewhat incomprehensible.

There isn’t a good way to trade on the derivative pairs. You are bound to the whim of two different markets and often their price movements are completely unexplainable. Trend-trading is the most viable strategy, but considering the erratic market, the risk is not worth it.

Conclusion

The worst currency pairs are considered “the worst” for good reasons. While there are ways to trade them and not end up in a complete wash, the risks and efforts far outweigh the reward. Especially for newcomers, who should probably stick to the major currencies.

Moreover, some brokers make trading on exotic or derivative currencies practically impossible with high spreads. If you still want to try them — consider switching to something like JustForex ECN Zero account, which features no spreads at all. You will have to pay a fee for each transaction but your chances to close your order in the green will increase drastically.