Why Choose Just 1 Pair?

Focus: FOREX

Marc Principato Image Marc Principato Director, SMB Forex training Program

Professional trader, Marc Principato, CMT, of SMB University Forex Training Program explains why newer traders should focus their energies on only one currency pair.

A very frequent question I get from traders starting out is, “Which pairs are the best ones to trade?” Another subtle example of the conditioning people have accepted from equities trading. Modern Portfolio Theory along with just about every personal finance book and blog has pushed the idea of “diversification.” This means don’t bet on just one instrument, spread your risk across many, and you should do better in the long run. Makes sense, but in the forex world it is not as simple as it is in equities trading.

It seems to me that many new traders in the forex market don’t understand the relationship of currencies that are paired with the US dollar, also known as the “Majors.” Pairs like EUR/USD, GBP/USD, and USD/CHF are part of this group. The part most misunderstood is that basically all these pairs are just a slightly different expression of the strength or weakness of the dollar. So if you buy EUR/USD and short USD/CHF you just doubled your position and your risk.