9 Tips for Trading Minor Currency Pairs

Major FX pairs, such as the EUR/USD, USD/JPY and GBP/USD, are popular among traders for their massive trading volumes in the global forex markets. However, minor pairs, i.e., those involving major currencies other than the US dollar, also offer tremendous opportunities for forex traders. These include the EUR/GBP, EUR/CHF, GBP/AUD, CAD/JPY, etc. These pairs are also called crosses.

The rising popularity of retail forex trading has improved the efficiency of the minor FX markets. Here are the top tips to help you make the most of opportunities in minor currency pairs.

Reasons to Start Trading Minor FX Pairs

There are several advantages of trading cross-currency pairs:

• Minor currency pairs allow you to diversify your portfolio. This reduces the risks associated with US-dominated forex trading.
• Crosses have a low correlation with the USD and major currency pairs, thus generating opportunities different from the broader market trends.
• Minor FX pairs are more volatile than majors. This allows you to take advantage of a greater number of forex trading opportunities.

However, note that ready market analysis might not be as readily available for cross-currency pairs as for major forex pairs. Therefore, it is a good idea to refine and build your strategy with the help of your brokerage’s analytics tools. Using expert advisors (EAs) can also be of great help.

9 Tips to Ace Trading Minor FX Pairs

1. Choose the Market CarefullyThere are many cross-currency pairs to choose from. These are from both advanced and emerging economies, such as Japan, New Zealand, Australia, Canada, Switzerland, etc. Pick the markets that you understand. Choosing the currencies of countries whose economies interest you can be useful in helping you make trading decisions. Economies with high growth potential and political stability offer more predictable opportunities.
2. Consider Your Risk Tolerance Limits and CapitalVolatility is a double-edged sword. While it amplifies trading opportunities, it could also lead to losses if the market suddenly turns unfavourable. Wider swings translate into higher risk. Like any other instrument, keeping your risk per position under 2% is popular among experienced traders. Additionally, hedging your positions and associated risks with more stable or uncorrelated forex pairs can help maintain a calm trading psyche.
3. Find Your Trading Sweet SpotAligning your trading strategy with the liquidity in the forex markets can help you discover more opportunities and facilitate entry and exit without delays. Choose crosses that align with your trading style and tend to see higher volumes during your preferred trading time. You can use the 5-3-1 forex strategy to develop a minor currency trading plan.
4. Identify the Right IndicatorsUsing the right technical indicators is paramount to identifying entry and exit points. A great strategy for comprehensive analysis is to add appropriate volume, volatility, momentum, and trend indicators to your arsenal and develop a technical analysis strategy for each minor forex pair you are interested in.
5. Adapt Your Trading StrategyThe principles of forex trading remain the same for major and minor pairs. However, you must refine your forex strategy and trading frequency to optimally utilise the opportunities of crosses. If you use EAs, you must backtest your EA for the chosen minor FX pair. It is a good idea to try it with different configurations. If necessary, look for a new EA that is more suitable to your trading strategy.
6. Keep Tabs on Local NewsCross-currency pairs are affected by local GDP reports, inflation data, trade deficits, debt information, elections, central bank policies, etc. It is a good idea to set alerts related to regional news and calendar events to stay updated on factors that may influence your chosen pairs. For instance, in the second week of July 2024, the European Central Bank (ECB) decided to delay further rate cuts. This news helped the EUR/GBP pair break its downtrend. As a result, the pair rebounded from the 23-month low it had hit after the UK election.
7. Implement Appropriate Risk Management MeasurementsHigh volatility amplifies risks, which necessitates robust risk management. Employing techniques, such as stop loss, trailing stop loss and take profit, can improve your forex trading experience.
8. Train Your PsycheTrading in high-volatility markets may tempt beginner traders to bank potentially quick profits. However, this may be counter-productive. Long-term success comes from discipline and not emotional trading. A good practice is to build a trading psyche that prevents emotional trading and encourages you to stick to your trading plan. You can start by trading on a demo account, journalling your learnings, and then entering the live markets with greater confidence and a reliable forex strategy.
9. Multiply Your Opportunities with CFD TradingContracts for Difference (CFDs) are derivative instruments that allow traders to take advantage of both rising and falling prices. CFD trading involves the use of leverage, which amplifies market exposure. However, margin trading also magnifies the potential risk. This means employing robust risk management measures is all the more important when trading minor currency pairs via CFDs.

To Sum Up

• Minor FX pairs involve all major currencies except the US dollar.
• Minor pairs expose forex traders to unique opportunities.
• Choose the right pair and tailor your forex strategy accordingly.
• FX traders can take advantage of rising and falling markets with CFD trading.
• Robust risk management is paramount with minor pairs and CFD trading.

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