What is the best number of trading instruments to use in forex?
Sooner or later, any trader faces a question: how many currency pairs do
I need to trade effectively, how many instruments do an experienced and
efficient trader use? And does the number of trading instruments matter
at all? Or could one earn a lot using just one favorite pair
?
Besides, traders, especially beginners, try to determine what particular instrument or several instruments are the most effective. According to InstaForex analysts, a big number of trading instruments used simultaneously is not a key to success. Such factors as the status and reliability of a broker, trading experience, self-reliance, as well as strategies and approaches to trading, in general, are more significant.
Risk management is also considered a crucial factor. The more currency pairs you use, the higher your risks are, since all your instruments should be monitored using money management strategies.
Even with a standard risk of 5% per order, if you use 10-20 currency pairs at once, you greatly increase the risks. Few people trade ten currency pairs simultaneously, as it takes too much time and energy.
It is necessary to understand that it is not the number of pairs that makes a profit but the risk management, which is extremely difficult if you trade a lot of pairs. But if you are an experienced trader who can manage several pairs at the same time while being able to smooth out possible losses, then you can trade many instruments at once.
?
Besides, traders, especially beginners, try to determine what particular instrument or several instruments are the most effective. According to InstaForex analysts, a big number of trading instruments used simultaneously is not a key to success. Such factors as the status and reliability of a broker, trading experience, self-reliance, as well as strategies and approaches to trading, in general, are more significant.
Risk management is also considered a crucial factor. The more currency pairs you use, the higher your risks are, since all your instruments should be monitored using money management strategies.
Even with a standard risk of 5% per order, if you use 10-20 currency pairs at once, you greatly increase the risks. Few people trade ten currency pairs simultaneously, as it takes too much time and energy.
It is necessary to understand that it is not the number of pairs that makes a profit but the risk management, which is extremely difficult if you trade a lot of pairs. But if you are an experienced trader who can manage several pairs at the same time while being able to smooth out possible losses, then you can trade many instruments at once.
One pair vs. many pairs
More than seven million InstaForex traders usually use 1-2 currency pairs to trade simultaneously. And this is understandable, because operating a large number of instruments (over three) requires more analytics, forecasting, and control over open positions. There is a popular myth: the more trading instruments you use, the more you can earn. In fact, this is rarely the case.
If you associate effectiveness of your trading with a variety of currency pairs, believing that the volatility of a particular pair can bring you profit, then you should trade pairs one by one choosing the best for you. You can trade safe-haven currency pairs for a week or two, then try emerging market currencies for another few weeks, and after that switch to the main classic pairs.
Thus, you can determine the most predictable instruments. If you find a currency pairs correlation, such as USD/emerging markets pairs, you can trade several assets simultaneously in one trend. However, in this case, such pairs will behave almost synchronously which makes it unnecessary to split the deposit into instruments instead of increasing the amount of the transaction within one single pair. The result, both positive and negative, will be the same.
More than seven million InstaForex traders usually use 1-2 currency pairs to trade simultaneously. And this is understandable, because operating a large number of instruments (over three) requires more analytics, forecasting, and control over open positions. There is a popular myth: the more trading instruments you use, the more you can earn. In fact, this is rarely the case.
If you associate effectiveness of your trading with a variety of currency pairs, believing that the volatility of a particular pair can bring you profit, then you should trade pairs one by one choosing the best for you. You can trade safe-haven currency pairs for a week or two, then try emerging market currencies for another few weeks, and after that switch to the main classic pairs.
Thus, you can determine the most predictable instruments. If you find a currency pairs correlation, such as USD/emerging markets pairs, you can trade several assets simultaneously in one trend. However, in this case, such pairs will behave almost synchronously which makes it unnecessary to split the deposit into instruments instead of increasing the amount of the transaction within one single pair. The result, both positive and negative, will be the same.
You need to understand that you can earn up to 100% of the deposit every
day just on the price movement in a narrow channel within 30-50 points,
and you will not get even 5% profit on a good trend of 200-300 points
by splitting your deposit into a dozen pairs. The fact is that an
accurate calculation of risk per transaction, based on the features of
your trading strategy, allows you to make a maximum profit using just
one or two pairs.
For example, you have chosen a specific instrument and a trading strategy. After calculating maximum possible losses, you have determined a safe lot for trading. Further, depending on the accuracy of the system, you will still earn the same money as when using several pairs, since even with 5% money management you would have to divide it by the number of pairs.
And if you trade five currencies, then, according to the rules, you should risk 1% of the deposit in one transaction. Let's now think, does it make sense to trade several pairs at once, analyze each of them separately and monitor open orders 24/7? Trading one currency pair will bring at least the same profit but will require much less time and nerves.
And you will have to divide the risk by the total number of trading instruments in any case if you want to keep the deposit during a negative period in the market. And yet questions remain: what pairs are the best to use? Are there the best instruments at all, or an experienced currency trader does not divide trading instruments into good and bad, effective and inefficient, understandable and unpredictable?
For example, you have chosen a specific instrument and a trading strategy. After calculating maximum possible losses, you have determined a safe lot for trading. Further, depending on the accuracy of the system, you will still earn the same money as when using several pairs, since even with 5% money management you would have to divide it by the number of pairs.
And if you trade five currencies, then, according to the rules, you should risk 1% of the deposit in one transaction. Let's now think, does it make sense to trade several pairs at once, analyze each of them separately and monitor open orders 24/7? Trading one currency pair will bring at least the same profit but will require much less time and nerves.
And you will have to divide the risk by the total number of trading instruments in any case if you want to keep the deposit during a negative period in the market. And yet questions remain: what pairs are the best to use? Are there the best instruments at all, or an experienced currency trader does not divide trading instruments into good and bad, effective and inefficient, understandable and unpredictable?
One pair secret
There is no obvious difference between trading instruments (currency pairs). You can get 50% from a trade even on a 40-50 point movement with a stop order of 5-10 points. The question of the percentage coefficient of profit and loss, again, is a question of money management.
If there is a 5% risk and your stop loss is 5 points, and the goal is 50 points, then simple calculations guarantee income from an order closed in profit equal to 50% of the entire deposit with the same standard risk.
And if your stop order is 100 points, then it does not matter how much you earned from the transaction, 100, 200 or 300 points, the yield per transaction will not exceed 15-30% of the deposit. And here we have the same conclusion: the effectiveness of your trading depends heavily on the trading strategy, risk management, and current market volatility. The number of trading instruments and the type of currency pair are not so important.
You can pick a particular currency pair only by your personal preferences, a sense of understanding the instrument and its behavior in a given market situation, but this only comes with experience and after long work with one or another pair. Some pairs are good for position trading and waiting for favorable trend movements, while others are great for short-term operations or scalping.
Also, your trading system can be designed for a certain style and nature of the currency. For example, main currencies are the best for copying trades of a major player. It is up to you to decide what particular pair and strategy to choose, of course, this will in no way affect the profitability of your work.
Properly calculate your trading risks and test the algorithms for predicting the exchange rate; do not think that quantity is the goal. Make a high-quality analysis of one or two currency pairs. This is how you will eventually get insight and efficiency.
There is no obvious difference between trading instruments (currency pairs). You can get 50% from a trade even on a 40-50 point movement with a stop order of 5-10 points. The question of the percentage coefficient of profit and loss, again, is a question of money management.
If there is a 5% risk and your stop loss is 5 points, and the goal is 50 points, then simple calculations guarantee income from an order closed in profit equal to 50% of the entire deposit with the same standard risk.
And if your stop order is 100 points, then it does not matter how much you earned from the transaction, 100, 200 or 300 points, the yield per transaction will not exceed 15-30% of the deposit. And here we have the same conclusion: the effectiveness of your trading depends heavily on the trading strategy, risk management, and current market volatility. The number of trading instruments and the type of currency pair are not so important.
You can pick a particular currency pair only by your personal preferences, a sense of understanding the instrument and its behavior in a given market situation, but this only comes with experience and after long work with one or another pair. Some pairs are good for position trading and waiting for favorable trend movements, while others are great for short-term operations or scalping.
Also, your trading system can be designed for a certain style and nature of the currency. For example, main currencies are the best for copying trades of a major player. It is up to you to decide what particular pair and strategy to choose, of course, this will in no way affect the profitability of your work.
Properly calculate your trading risks and test the algorithms for predicting the exchange rate; do not think that quantity is the goal. Make a high-quality analysis of one or two currency pairs. This is how you will eventually get insight and efficiency.
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