Why Trade Minor Currency Pairs?
Many traders tend to avoid trading minors because of the high volatility. This is due to a lot of misconceptions about the minor currency pairs. However, there are a lot of traders who are interested in trading this type of currency pair. For any trader interested in trading the minors, you will have to study your trading plan to know if it’s convenient for markets with low liquidity. For instance, if scalpers and day traders trade the minors, the wider spreads charged might impede their overall income. A Lot of traders are wondering “why trade the minors”?
There are so many reasons why traders trade minor currency pairs. It is said that the higher the volatility the higher the profitability. Some top Forex brokers offer tradable minor currencies, while some prefer to focus on currencies with tight spreads. These currencies with tight spreads include the US dollars, they are the major currency pairs. However, monitoring the minor market trends can still offer trading opportunities.
WHAT ARE THE MINOR CURRENCY PAIRS?
Minor currency pairs are those pairs that do not have the US dollar attached to them. They are the smallest forex market shares as compared to the Major currency pairs like EURUSD, USDJPY, USDCHF, USDGBP. This results in minor pairs having low market liquidity and also a wider spread as compared to the Major pairs.
However, these limitations and setbacks when it comes to the Minor pairs do not affect the majority of traders who prefer to trade minor pairs as compared to Major pairs. For instance, most market analysts and traders often indicate that currency pairs such as AUDUSD, USDCAD, and NZDUSD are minor currency pairs. Although, in most cases, traders include these pairs as Major pairs.
However, most pairs considered as minor pairs do not have the US dollars attached to them. For instance, EURGBP, EURNZD, JPYCAD, CHFGBP, etc. These minor pairs are also referred to as Cross-Currency pairs. The US is probably one of, if not the biggest country in the world not geographically, but in terms of significance and power. Globally the United States is considered the world power. This is why the currency pairs paired with the US dollars are referred to as the Major currency pairs.
WHY TRADE MINOR CURRENCY PAIRS?
Oftentimes most traders prefer to only trade the major currency pairs. Only a few traders pay attention to the minor pairs and also put them on their watch list. These Major currency pairs traders are not to be blamed. Most educational content found online and offline are mostly centered on the major forex pairs. It is only natural for traders to go with what they are exposed to, and know of. Therefore, most traders only trade major currencies because that is what they are used to, and what most educational sectors talk about. Fortunately, this article is centered on why trade the minors? The advantages of trading the minors and also how to trade the minor currencies.
MINOR CURRENCY PAIRS TRENDS MORE THAN THE MAJOR CURRENCY PAIRS
Some minor pairs have more price movements as compared to major pairs. These currency pairs are more volatile and their prices swing more than major currency pairs. And for any trader, this is a good condition to base your trading strategy on. When a currency is highly volatile, it tends to create more market trends during trading sessions. It gives traders the advantage and opportunity of trading different market trends. However, high volatility or frequent market trends do not guarantee successful trades. It takes hard work and thorough monitoring of these pairs to pinpoint a good market trend to trade.
MINOR CURRENCY TRENDS LAST LONGER COMPARED TO MAJOR CURRENCY TRENDS
Minor currency pairs have high volatility therefore, it provides more trading opportunities for traders. These trading opportunities are high-quality trading opportunities because of the long-lasting trends. If a trade spots a minor currency trend and trades the trend, the probability of generating good profit is high. But for you to be able to spot and trade and trade these trends in the Minor forex pairs, you must first learn how to recognize trends and how to trade the trends. You need to upgrade your educational level on how these trends can be spotted and traded.
FUNDAMENTAL FACTORS DO NOT GREATLY AFFECT THE MINOR PAIRS
As stated earlier, Major currency pairs are pairs that are attached to the US Dollar as a currency pair. The US is the most significant and powerful country. Anything happening worldwide greatly affects the US economy too. The prices of the Major currencies are influenced greatly by fundamental factors. Most times when an event occurs that greatly affects the United States, it also ends up affecting the other paired currency.
This could also end up affecting the price of every major currency pair. In this case, the Minor currency pair stands out. They do not get affected by Fundamental news. Traders can comfortably trade minor pairs without having to worry about fundamental events. This is an added advantage the Minor pairs have over the major pairs.
YOU HAVE MORE TRADABLE PAIRS OPTIONS WITH MINOR PAIRS
There are a total of 27 currency pairs that can be formed from the 8 major currencies. However, there are only 7 major forex pairs. Any trader focusing just on the major pairs means he/she is excluding the remaining currency pairs which are about 20. These remaining 20 currency pairs could help in generating more income. Let’s say only 10 currency pairs are worth trading out of the remaining 20 currency pairs, that is, additional 17 currency pairs to add to your watchlist. If these currency pairs are carefully monitored and tracked, you will find a trading opportunity to take advantage of. Broaden your trading opportunities, use a good trading strategy and get a good profit.
WHY DO TRADERS AVOID THE MINOR CURRENCY PAIRS?
Hopefully, by now, you already know the numerous advantages associated with trading minors. Minor pairs are worth trading and not as bad as most educational articles make them out to be. Most professional traders prefer to trade minors because it brings more profit. However, trading minor currencies can be very tactical but then it is worth it.
MINORS HAVE LESS LIQUIDITY
The majority of educational articles, videos, and webinars about minor forex pairs online are full of misconceptions and exaggerated stories about the minor currency pairs. The most common fallacy said about minor currency pairs is that they have less liquidity. Most traders making these claims only trade with an equity of about $1000 and yet they somehow expect to generate profits from trading the minors. These minor pairs listed above are mainly traded regularly by traders that have big equity, and or the whales as they are called, and by trading these minor currencies they provide the liquidity.
These whales Connor decide not to trade the minor currencies just because they are minor currency pairs. If they see a good trading opportunity with the minor currency pairs then anyone can. Another thing every intending minor currency trader should note is, during major trading sessions such as Asian, American, and European sessions, every currency will have liquidity and volume. When it comes to trading the minor currencies, the last thing a trader should do is worry about the liquidity of the pairs, but rather the opportunity that isn’t being utilized.
MINORS DON’T WORK WITH STRATEGIES
Strategies are rules and plans laid out by a trader. These rules and plans are his/her guide for an upcoming trade to generate good profits. These strategies are formed based on the analysis carried out by the trader. This analysis carried out could be through the use of technical analysis, using the historical market data of the currency pair. A strategy can be formed based on past market events that are predicted to repeat. If this strategy is carefully analyzed I’m there is no reason why it shouldn’t work with the minor currency pairs. But when a strategy is randomly picked without any careful analysis the strategy might not work as you’ve predicted it to work.
As a trader, it is not advisable to pick any random strategy for any currency pair and hope for it to work. To develop a good and working strategy you must devise a new trading strategy for any currency pair being traded. If you can develop a good strategy then it will be successful, but in a case where a developed strategy fails, which happens irrespective of the currency pairs being traded, it only means you need to improve your strategy or create a different one entirely.
MINORS MAKE USE OF WIDER SPREADS
Another reason why traders shy away from tracing the minors is because of the charge of wider spreads. This has always been a problem for traders. Minor currencies are charged wider spreads, but this is not enough reason to discourage a trader from trading the pairs. Spreads are only a problem when it takes up a large volume of your profits, for instance, if a trading strategy has a profit potential of 10 pips and the spread charged is 5 pips, then it becomes a problem. But in a case where the trades strategy has a potential profit is 100pips, and the charged spread is 5 pips then there is no reason to be scared of spreads.
However, scalp traders and day traders can not always trade the minor currency pairs due to the spread charge. Although, opportunities can spring up once in a while, and if the setup and potential profits are right then go for it. But then if you are not a very good scalp trader it is more advisable to trade the minor currency pairs using the swing trade strategy or on a long-term basis. This strategy helps in generating more profits and the spread charged is not much.
HOW TO TRADE THE MINOR CURRENCY PAIRS
There is no special procedure for trading minor currency pairs. It is just like trading every other forex pair’s financial asset. However, the strategies utilized in trading other financial instruments or forex pairs might not be applicable when it comes to minor pairs. Notwithstanding, the normal trading rule of demand and supply still applies. The basic rule of supply and demand states that when supply exceeds demand the price of the set decreases. When demand exceeds supply, the price of an asset increases. In trading Minor currency pairs, this principle is applicable. However, in addition to this, a strategy that suits your trading plan needs to be set up.
If you are an experienced trader or even a newbie who has closed up to 3 successful trades, you will be able to come up with good strategies on price swings that can yield profitable results. Technical tools such as support and resistance levels can be used in trading Minor currency pairs. These technical tools will enable you to take good advantage of the price swings. Other helpful technical tools include chart patterns, like wedges, tops, triangles, bottoms, etc. Trading with the use of Indicators is also a good idea. You can choose any indicator and develop a trading plan around it. In some cases, Minor currency pairs can be traded with the use of Fundamental analysis.
It has already been established that most of the educational articles and blog posts posted online about the minor pairs are being exaggerated. The minor pairs are as profitable as the Major pairs. In some cases, the minor pairs are more profitable due to their ability to trend for a longer time in the market. And also the ability to trade the pairs without the fear of the price being influenced by fundamental news.
The minor currency pairs might have wide spreads as compared to the major pairs, but it’s not enough reason to completely ignore the pairs and not trade them. Most traders who trade the minors have generated lots of profits. Trading the minors has made lots of traders millionaires. However, you must be tactical and carefully choose a strategy that could work, just like when trading any other currency pair.