Best Assets to Trade in Forex

If you’ve ever wondered why some traders consistently win while others struggle, it all boils down to one critical factor: asset selection. Understanding which assets to trade in the vast world of forex can make the difference between a profitable career and a series of frustrating losses. But the secret isn’t just choosing any asset. It’s about selecting the best, at the right time, in the right context.

Let’s begin with the most liquid and traded asset in forex: currency pairs. These pairs are divided into three categories: majors, minors, and exotics. Each of these comes with its own unique opportunities and risks. But to truly maximize your potential, you need to focus on a few key assets that have stood the test of time.

Majors: The King of Forex Assets

In forex, the major currency pairs are the most popular for a reason. These pairs involve the US dollar (USD) and include currencies like the euro (EUR), Japanese yen (JPY), British pound (GBP), Swiss franc (CHF), Australian dollar (AUD), Canadian dollar (CAD), and New Zealand dollar (NZD). The EUR/USD pair alone accounts for nearly 30% of all forex transactions. Why? Because these currencies are tied to stable economies, they offer high liquidity, meaning it’s easier to enter and exit trades without significant price changes.

The Strength of the US Dollar

It’s no surprise that the USD plays a pivotal role in global trade, given its dominance in international transactions. Its stability makes it a favorite among traders, whether you’re a beginner or a seasoned professional. But there’s more to the story than just popularity. Trading the USD allows you to tap into global economic trends. For example, if there’s a shift in US interest rates, you’ll likely see an immediate impact on the USD, creating trading opportunities.

Minors: The Overlooked Goldmine

Now, let’s talk about the minor pairs—currency pairs that don’t include the USD but involve other major currencies. Think of EUR/GBP or AUD/JPY. These pairs offer unique opportunities for those willing to explore beyond the majors. Why? Because they tend to have lower trading volume, meaning less competition. But with lower volume comes higher volatility, offering greater potential for larger profits in shorter timeframes.

Exotics: High-Risk, High-Reward

Exotic currency pairs involve one major currency and one from a smaller or emerging market, such as USD/TRY (Turkish lira) or USD/BRL (Brazilian real). Trading exotics can be extremely rewarding, but it’s not for the faint-hearted. These pairs tend to be more volatile, with wider spreads, meaning the costs of trading are higher. However, the payoff can be substantial if you correctly predict market movements in emerging economies.

Timing Is Everything

The key to trading exotics successfully is timing. For instance, when geopolitical events or changes in national policy occur, exotic currencies can see drastic shifts. This is where your knowledge of macroeconomic factors comes into play. Understanding political trends, inflation rates, and trade balances can give you an edge when trading these assets.

Commodities: The Hidden Asset in Forex

Wait—aren’t we talking about forex? Yes, but did you know you can trade commodities within the forex market as well? Gold (XAU/USD) and crude oil (WTI/USD) are two of the most popular commodity assets that are closely tied to currency movements. Gold, for example, often acts as a hedge against inflation, and its price tends to rise when major currencies, especially the USD, lose value.

Gold: A Safe Haven in Uncertain Times

During times of market uncertainty, traders often flock to gold. But there’s more to this asset than just a safe-haven appeal. Gold offers a unique opportunity because its price often moves inversely to the USD. When the USD weakens, gold strengthens, making it an excellent tool for diversifying your forex trading portfolio. Additionally, central banks hold vast reserves of gold, and shifts in their buying or selling patterns can offer valuable clues for future price movements.

Indices: Broad Exposure with Lower Risk

Trading indices in the forex market allows you to gain exposure to an entire market without the need to trade individual stocks or currencies. Popular indices like the S&P 500 and the Dow Jones Industrial Average give traders access to the broader economic performance of a country or region.

Why Trade Indices in Forex?

Indices provide a balanced approach, reducing risk by offering exposure to multiple companies in one trade. For example, when trading the FTSE 100 or the DAX, you’re essentially betting on the performance of the top companies in the UK or Germany, respectively. The advantage? Indices often trend more predictably than individual assets.

Cryptocurrencies: The New Frontier

While traditionally not part of the forex market, many brokers now offer cryptocurrency trading alongside traditional forex assets. Bitcoin (BTC) and Ethereum (ETH) are leading the charge, offering a new dimension to asset trading. Cryptos are highly volatile, which makes them both a high-risk and high-reward proposition.

Why Add Cryptos to Your Portfolio?

Cryptocurrencies bring unparalleled volatility, which is a double-edged sword. On one hand, you can make substantial gains in a short period. On the other, the risks are equally high. However, by incorporating crypto assets into your forex strategy, you can hedge against traditional market movements, potentially increasing your overall portfolio resilience.

Cross-Asset Correlations: A Strategy to Amplify Profits

One of the most effective ways to trade forex assets is by understanding correlations between different asset classes. For example, when trading gold and USD, knowing that they typically move inversely allows you to craft strategies that maximize your returns. Similarly, some currency pairs are correlated with the performance of stock indices. For instance, AUD/USD often correlates with the price of commodities like iron ore and coal, as Australia is a major exporter of these resources.

Building a Diversified Portfolio: Not Just About Currencies

Forex trading doesn’t mean you have to stick exclusively to currency pairs. By incorporating commodities, indices, and cryptocurrencies, you can build a well-rounded, diversified portfolio that protects you from market volatility. But diversification isn’t just about reducing risk. It’s about creating multiple streams of profit opportunities, ensuring that if one market underperforms, another can pick up the slack.

Leverage: The Double-Edged Sword

No discussion about forex trading would be complete without touching on leverage. Forex brokers often offer leverage ratios as high as 1:500, allowing you to control large positions with a relatively small capital investment. But beware—while leverage can amplify your profits, it can also magnify your losses. It’s crucial to use leverage responsibly and understand the risks involved.

Risk Management: Protecting Your Capital

At the heart of successful forex trading is risk management. Before diving into any trade, especially when using leverage, set a stop-loss to protect your capital. In volatile markets like forex, it’s easy to get swept up in emotions, but having a predetermined exit strategy can save you from devastating losses.

Conclusion: The Best Assets Are the Ones You Understand

The world of forex is vast and filled with opportunities, but to succeed, you must focus on the assets that align with your knowledge, risk tolerance, and trading goals. Whether you choose to trade major currency pairs, dive into the world of exotics, or explore commodities and cryptocurrencies, the key is to stay informed and adapt your strategies as the market evolves.