Imagine for a second you own and race thoroughbred horses…

Your pride and joy thoroughbred has been training for the past two years for the race of a lifetime – and now your horse will soon be racing for a million-dollar prize.

You just got the ultimate advantage. You get to choose your opponent for this million-dollar race. You can assign your opponent any horse you want.

Now would you give your opponent the second-fastest horse in the world?

Or would you give him a broken-down old donkey that could hardly run?

Yeah I’d give them the donkey too.

It’s kind of common sense that, if you pair the fastest against the slowest your odds of winning will skyrocket.

…or if you pair the healthiest/strongest horse against an old, weak horse that you gain an enormous edge. After all, who wouldn’t take that bet?

Strangely, the exact same method can work in Forex trading. It’s the secret to earning 25%…79%…even 200% more on each trade.

Fixed Currency Trades and How to Avoid Gambling

As most of you probably know, every Forex trade involves trading two currencies.
You’re always buying one and selling another currency.

For instance, by “buying the GBP/USD” you’re really betting the British pound will rise against the dollar, or in effect you are buying the pound and selling the dollar.

Now, there are about 60 tradable currency pairs worldwide. So how do you choose which to trade? Well it comes down to choosing your opponents wisely.

You see, if you’re trading two currencies from economies that are growing at a similar pace then you are decreasing your odds of success.

After all if it’s a close race, and both economies are healthy, who knows which will pull ahead first?

Answer: You can’t. It’s a gamble.

But on the other hand, you could pair the currency from the most pristine economy in the G-7 with the worst debt-ridden nation that can’t seem to do anything right.

After all, you can pick your opponents. You can choose any currency you want. Why not pick the “more favorable” opponent to help you win the race?

Do that and you have essentially a “fixed” currency trade. It’s not a gamble anymore – it’s pairing your most prized thoroughbred with an arthritic donkey.

For once in your life you get to be Don King and rig your own match!

How to Build Your Own Fixed Race

Now how to do you find the weakest and strongest countries so you can set up your own fixed currency trades?

The first thing to look at is interest rates. Currencies love higher interest rates because Forex traders are always looking for a higher yield on their trades. As FX traders pour money into a higher-yielding currency, the currency’s price goes up. So if you’re looking for the healthiest “thoroughbred” currency, check out the one with the highest interest rates first.

On the flipside, currency traders tend to dump low-yielding currencies if there’s nothing else to bolster the price. That’s why the U.S. dollar started to sink in 2007 when the Fed first started cutting rates.

You also want to look at unemployment, GDP growth and credit availability when you’re evaluating a currency’s strength. The healthiest currency will come from a country with low unemployment, solid long-term GDP growth and available credit. The weakest currency will have rising unemployment, low or negative GDP growth and very little credit.

So as a trader, you always want to pair high interest rate countries with low interest rate countries. Pair countries with low unemployment against those with high unemployment. Pair those with positive GDP growth against those that have a negative GDP growth (a shrinking economy).

Now here’s where it gets interesting. If you’re looking to pair the weakest with the strongest, you don’t necessarily have to include the U.S. dollar as one of your contenders…

When you take the dollar out of the pairing and you directly pair two foreign currencies together, you have what’s called a “currency cross.”.

Why Currency Crosses? Simply Put…More Opportunity!

If you’re looking to pair the weakest with the strongest, it helps to cut the dollar out of your trading. As the largest country in the world, and the most overtraded currency, it can be difficult to see where the dollar lies on any given trading day.

Also, there’s just simply more opportunity to trading non-dollar pairs. For instance, check out the two “euro” trades below.

You could buy EUR/USD like most of the traders in the Forex world…or you could trade the EUR/JPY and gain 25% more profit potential. Now that’s what I call an edge!

Want 25% More Opportunity Each Day? Check This Out…

Many people never look past the majors for trading opportunities. But I’ll tell you, it pays to look to beyond the normal dollar pairs.

Let’s take a look at another one. I bet you don’t know one person that trades the GBP/NZD pair, even though they are two major G-7 nations! Check out the chart below and you’ll see a “gold mine” that many traders pass over each day.

Trade the “Pound Pair” that has 79% More Pips Each Day!

Would you rather have 79% more profit potential in a day…or 79% less when you trade GBP/USD? I’ll take the latter.

My Top “Fixed” Currency Trade for December

My top “fixed” match for this year is the AUD/NZD pair (or buying the Aussie, selling the New Zealand dollar). You see, on the surface, these countries seem so similar.

After all, they both have somewhat higher interest rates when compared to the other countries. They both are “commodity based” currencies because they are huge commodity exporters to nations all over the world.

But there are a few key differences that stack the odds in your favor.

First, Australia has already hiked interest rates TWICE this year and no one out there has done that. New Zealand’s central bank has gone on record saying that it may be well into 2010 before they hike interest rates.

As I’m writing this, news just hit the wires that is further “pulling the rug” out from under the New Zealand dollar.

The Labour Party said that they will no longer support the central bank’s primary policy of targeting inflation.

You see, when central bankers focus on inflation, they tend to raise interest rates. As I mentioned before, higher rates draw Forex traders to the currency, which pushes up the currency’s price.

The only problem? If a certain currency rises too much in price, then their exports look really expensive. A small nation like New Zealand can’t handle a major stumbling block like that.

So you can bet that this has put a “kink” in the central bank’s plans to eventually raise interest rates. Also, this discord and lack of political support for the central bank’s actions will weigh upon their currency.

Additionally, Australia’s central bank has a history of being much more preemptive in putting a lid on inflation than most any other country out there. This will lead more money to the Aussie dollar and further away from the New Zealand dollar.

On top of that, Australia’s gold mines will fare far better than New Zealand’s agricultural exports. Gold is in high demand right now, and those high prices will drive up the Aussie’s price. Agricultural exports can never compete with that kind of gold rush.

This recent political shift will cause these two countries to start to diverge even more and the uptrend in AUD/NZD will strengthen as a result.

This all makes the Aussie our thoroughbred and the Kiwi our donkey. Place your bets ladies and gentlemen.

Happy Trading!
Sean Hyman, aka Professor FX

A 17-year veteran in the financial markets, Sean Hyman has been a senior writer for FX University Daily since 2007, and a currency trader since 2001. To get the full story on how Sean got started in the industry, and hear key trading tips that can boost your FX profits, read our latest special report here.