The Importance of Asset Selection in Trading

In trading, choosing the right asset is just as important as choosing the right strategy. Many strategies that work on one asset may not be profitable on another. For instance, a strategy that performs well on a major currency pair like EUR/USD may struggle on an exotic pair like USD/TRY, or even on a commodity like gold. Therefore, selecting the right asset is critical to maximizing your profitability and minimizing unnecessary losses.

The Best Forex Pairs for Trading

Among currency pairs, GBP/USD and EUR/USD are considered some of the best options for both new and experienced traders. These pairs share several favorable characteristics that make them suitable for most trading strategies:

1. High Trading Volume: Both GBP/USD and EUR/USD are heavily traded, providing ample liquidity and frequent opportunities across all time frames.
2. Low Spreads: Low spreads make these pairs ideal for intraday traders and scalpers, as trading costs are kept to a minimum.
3. Trending Behavior: These pairs tend to follow predictable market cycles, often oscillating between periods of consolidation and trending movements.
4. Frequent Economic News: Economic events in the U.K., the Eurozone, and the U.S. frequently impact these pairs, offering regular opportunities for traders to capitalize on news-driven market movements.
5. Strategy Versatility: Most profitable trading strategies tend to perform well on these pairs. While no pair is universally "easy" to trade, these two offer a solid starting point for testing and refining strategies.

Many professional traders, including those at prop firms, often incorporate these two pairs into their trading portfolios because of their stability and consistent performance.

What Makes a Good Forex Currency Pair?

Identifying a good forex pair for trading involves looking at several key characteristics:

1. Low Spreads: Tight spreads are essential for day traders and scalpers, as higher spreads can quickly eat into profits.
2. Trending Markets: Pairs that move between trending and ranging markets offer predictable patterns, making them easier to trade profitably.
3. Frequent Economic News: Currency pairs influenced by frequent economic announcements tend to have more volatility, creating more trading opportunities.
4. High Trading Volume: Higher volume means tighter spreads and better price movement, which is crucial for shorter-term trading strategies.
5. Strategy Compatibility: A good currency pair is one that fits well with your specific trading strategy. A strategy that works on GBP/USD may not work as well on an exotic pair like EUR/ZAR, for example.

Other Assets to Consider: Gold and Indices

While currency pairs dominate forex trading, many traders also explore other assets like gold and indices (such as the S&P 500 and FTSE 100) to diversify their portfolios and capitalize on different market conditions.

Trading Gold

Gold, often referred to as a "safe-haven asset," is highly sought-after during periods of economic uncertainty. Here’s why gold can be a valuable addition to your trading portfolio:

1. Volatility: Gold is known for its volatility, especially during global crises or economic downturns. This volatility can present significant trading opportunities.
2. Inverse Relationship to Currencies: Gold often has an inverse relationship with the U.S. dollar. When the dollar weakens, gold prices typically rise, making it a great asset for traders looking to hedge their currency positions.
3. Strong Market Trends: Gold tends to trend for extended periods, making it ideal for trend-following strategies.
4. Liquidity: Like major currency pairs, gold has high liquidity, which keeps spreads relatively tight and makes it easier for traders to enter and exit positions.

Trading Indices

Indices like the S&P 500, Nasdaq, and FTSE 100 represent a basket of stocks from various industries, offering a broader view of the market's performance. Here’s why indices can be a good choice for traders:

1. Diversification: Indices allow traders to speculate on the overall market sentiment rather than individual stocks, reducing the impact of single-stock volatility.
2. Market Trends: Indices tend to follow broader market trends, and since they represent multiple sectors, they offer more stability compared to individual stocks.
3. Correlation with Economic Events: Like currency pairs, indices are heavily influenced by economic data and political events, making them ideal for news-based trading strategies.
4. Low Spreads and High Volume**: Major indices generally have low spreads and high trading volume, making them suitable for a variety of trading styles, from scalping to long-term investing.

What Makes a Bad Asset to Trade?

Just as there are good assets, there are also those that are more challenging or even unprofitable to trade. These include:

1. High Spreads: Assets with large spreads, like certain exotic currency pairs or low-liquidity commodities, can erode profits quickly.
2. Low Volume: Assets with low trading volume tend to have erratic price movements, making it difficult to execute trades efficiently. Examples include exotic currency pairs like EUR/TRY or AUD/PLN.
3. Constant Consolidation: Some assets, particularly certain minor or exotic currency pairs, tend to remain in tight trading ranges for extended periods. This lack of movement makes them challenging to trade. For instance, pairs like EUR/CHF and AUD/NZD often move within narrow ranges, offering few opportunities.

Testing Your Strategy Across Multiple Assets

To determine if your strategy works across different assets, it’s crucial to conduct thorough backtesting. Backtest your strategy on various currency pairs, gold, and indices to gather as much data as possible. By expanding your portfolio to include multiple assets, you can increase your chances of profitability while spreading your risk.

However, it’s essential to be cautious when trading correlated assets. For instance, if you're shorting multiple GBP pairs like GBP/USD, GBP/AUD, and GBP/NZD simultaneously, your risk exposure will be magnified. Even though your strategy may be profitable, trading correlated pairs increases your risk during adverse market conditions.

Conclusion: What Are the Best Assets to Trade?

In conclusion, the best assets to trade—whether currency pairs, gold, or indices—are those with high trading volume, tight spreads, predictable market cycles, and profitability with your specific trading strategy. Gold and indices can offer additional opportunities to diversify your portfolio and hedge against currency positions. Testing your strategy across a broad range of assets can help you find the perfect fit for your trading style and risk tolerance.

If you’re serious about maximizing your trading potential and minimizing personal risk, a funded account through a prop firm might be the better option. 

Interested in experiencing the benefits of trading with a funded account? Visit Proppers.io and start your journey today!