Characteristics of Forex Currency Pairs
Currency pairs that can be traded in FX have their own characteristics such as the size of price movements and the ease of trading, and the orientation of the currency pair changes depending on the trading style.
For short-term trading aimed at exchange gains such as scalping and day trading, currency pairs with active trading and low transaction fees are suitable.
On the other hand, in long-term trading, currency pairs that accumulate interest rate gains (swap points) between the two currencies, and are traded the stability and future potential of the political and economic conditions of the issuing country are also important.
Here, we will explain the JPY currency pairs you should keep in mind, the reasons for them, and the items that you should be aware of when trading.
With LQDFX, you can trade all of the following JPY currency pairs on MT4 trading platforms.
1. USD/JPY (US Dollars and Japanese Yen)
The USD/JPY is the second most traded currency pair in the forex market after the USD/EUR.
Since it is taken up as a topic of “strong yen or weak yen” in news, the advantage is that it is easy to grasp the trend of price movements and information.
A large volume of transactions means that there are many people who sell and buy at the desired price, which is called “high liquidity”.
A highly liquid currency pair is easily traded at the desired price and has a narrow spread, making it easy to carry out short-term trading such as scalping and day trading.
On LQDFX MT4, you can trade USD/JPY with 0.1 pips spread on VIP and ECN account types.
For other account types, the average spread is only 1.2 pips with no additional trading commission.
USD/JPY are also in demand from real demand sources (people who need foreign exchange transactions for foreign trade) such as exporters and importers, and cross-yen transactions such as EUR/JPY.
It is a currency with a large volume of transactions for 24 hours because it is exchanged once for US dollars and then for other foreign currencies.
The USD/JPY is also recommended for medium- to long-term trades such as swing trades and long-term trades where you need to read the market outlook, as much information will be included in news, since the US dollar reacts relatively straightforward to economic indicators (fundamentals) such as US employment statistics and US policy rates, check these forecasts, announcement dates and remarks from senior officials.
2. EUR/JPY (Euro and Japanese Yen)
The EUR/JPY is a liquid currency pair similar to the USD/JPY.
Actually, there are not so many direct transactions of “EUR/JPY”, so it is often handled as a fictitious currency pair (synthetic currency) that is a combination of “EUR/USD” and “USD/JPY”.
The characteristics of the EUR/JPY are that the spread is narrowest next to the US dollar and that a clear trend is likely to occur due to the influence of two currency pairs that have a large amount of transactions worldwide, making it easy to perform short-term trading using trend lines.
The price movement of the EUR/JPY increases when buying or selling is concentrated in the EUR or JPY among the three currencies which are EUR, USD and JPY.
For example, when both the “EUR/USD” and the “USd/EUR” are up, that is when the EUR is bought the most, and the USD is bought more than the JPY, and the JPY is being sold, then the EUR/JPY price rises further.
On the other hand, when the “EUR/USD” and the “USD/JPY” are moving in the opposite direction, that is when the EUR and JPY are bought and the USD is sold, the EUR/JPY will level off.
Therefore, it is recommended to compare the movements of the “EUR/USD” and “USD/JPY” and aim for trading opportunities.
As for the EUR/JPY, since the European Central Bank (ECB) has adopted a zero interest rate policy, many FX brokers have negative swap points when they hold a buy position.
Due to these features, the EUR/JPY is suitable for short-term trading that does not exceed one day, such as scalping and day trading.
With LQDFX, you can trade EUR/JPY with 1.0 pips standard spread on ECN and VIP account types.
3. MXN/JPY (Mexican Peso and Japanese Yen)
The MXN/JPY has a high swap point, and the exchange rate and political/economic conditions are stable among high-interest currencies.
There are many currency pairs with high swap points in emerging countries, such as Mexican peso and Japanese Yen (MXN/JPY), Australian dollar and Japanese Yen (AUD/JPY), NZ dollar and Japanese Yen (NZD/JPY), Turkish lira and Japanese Yen (TRY/JPY), South African Rand and Japanese Yen (ZAR/JPY) etc.
However, there are some countries that have political and economic risks that adversely affect the exchange rate, so choosing a currency pair that only trades at high swap points remains a concern.
However, in the case of the Mexican peso, the exchange rate movement is relatively slow.
In recent years, ratification of the US-Mexico-Canada Free Trade Agreement (USMCA) has also advanced, which is a good reason for the rise of the Mexican peso.
MXN/JPY currency pair is a rare Forex currency pair to trade.
With LQDFX, you can trade MXN/JPY on any account types and earn high swap points for carried over positions.
4. GBP/JPY (British Pound and Japanese Yen)
The GBP/JPY is often more volatile than the USD/JPY or EUR/JPY.
The pound is the fourth largest currency in the world to trade, but it is also characterized by the wide spread.
Spreads are unlikely to be important in regular trading. This is because the cost difference caused by the spread between one and two trades is often small compared to the profit and loss generated in the GBP/JPY.
The reason for the wide spread is that the fluctuation range is likely to be large.
If the fluctuation range is large, there is a high possibility that there will be a gap when a Forex broker is covering the liquidity.
To reduce that risk, Forex brokers tend to set large spreads in currencies that fluctuate widely.
The GBP/JPY has less circulation than the USD/JPY and the EUR/JPY, so it has higher volatility.
Circulation is determined by how many people want to buy and sell pounds.
The smaller the number of people who participate in buying and selling, the more difficult it becomes to match the person who wants to buy and the person who wants to sell.
Another reason is the price per pound.
The USD/JPY is around 108 Japanese yen, the EUR/JPY is around 121 Japanese yen, while the GBP/JPY is around 134 Japanese yen.
Even with the same volatility, the amount of money that moves depends on the currency.
GBP/JPY which has a higher price per currency than USDJPY and EURJPY, will often have a wider range of price movements.
Characteristic of GBP/JPY
Britain, which has been attracting attention due to its departure from the EU, is an Allied Power made up of four non-independent countries: England, Wales, Scotland, and Northern Ireland.
London, the capital of England, is also famous for having one of the world’s three largest financial markets, the “city” of financial centers.
When such a big city is about to move out of the EU, it cannot be apathetic.
The British currency, the pound, was once the world’s key currency.
The currency has the fourth largest trading volume in the world after the US dollar, the euro and the Japanese yen, and it still has a great influence.
Many of the world’s largest brokerage firms and banks are located in London’s financial center, as a remnant of the pound’s key currency.
As a result, the financial markets around the world, especially in London, are often moving.
It is known as a currency with a strong price movement, so beginners may have the impression that it is “high risk”.
However, it is said that it is popular with traders of intermediate level and above due to the large daily price movement.
The ability to collect news and other information and to have a clear view is important in the trading of pounds.
In order to gain a foreign exchange gain on the GBP/JPY trade, it is important to gather information firmly using the domestic and economic conditions in the UK, events and economic indicators that suddenly affect the pound.
It is also important to collect such information because it is geopolitically susceptible to the influences of the United States and Europe.
The main indicators in the UK include policy interest rates, unemployment rate/number of unemployment insurance applications, GDP, and trade balance.
And it is important to keep track of when these indicators will be announced and how the results are expected.