Forex Currencies: Introduction
By Brian Perry
The currency markets are the largest and most actively traded financial markets in the world with a daily trading volume of more than $3 trillion (Triennial Central Bank Survey 2007). The majority of this trading is concentrated in the world's major financial centers such as
Each transaction in the currency market involves two different trades: the sale of one currency and the purchase of another. The two currencies involved in the trade are known as a pair. While it is possible to swap virtually any currency for another, the majority of trading occurs among a handful of popular currency pairs.
|Figure 1: The most heavily traded currencies and their market share|
|Source: BIS Triennial Survey, 2004|
The chart shows the most heavily traded currencies and their market share. Total market share adds up to 200% because each transaction involves two currencies (ECB: BIS Triennial Survey 2004).
As the world's reserve currency, the U.S. dollar is the most actively traded currency, and pairs involving the dollar make up the majority of transactions. Therefore, this tutorial examines the trading relationships between the U.S. dollar and several of its chief counterparts, including the euro, the Japanese yen, the British pound, and the Swiss franc. The tutorial also examines other popular trading pairs involving the U.S. dollar and the commodity currencies – those of Canada,
Although the average trader will likely participate only in trades involving the U.S. dollar, this tutorial includes a discussion of cross rate pairs – pairs of significant international currencies that are not the U.S. dollar. Additionally, because emerging markets form an important part of the global financial system, this tutorial also examines the unique challenges facing individuals interested in trading emerging market currencies.(For more information, read The Foreign Exchange Interbank Market.)
Before the discussion of popular trading pairs, a brief analysis describes some of the instruments, concepts and strategies that should be familiar to investors trading in the currency markets.
Forex Currencies: Trading Strategies
The first currency quoted in a currency pair on forex. It is ...
The quotation and pricing structure of the currencies traded ...
The second currency quoted in a currency pair in forex. In a ...
The currency being exchanged in a currency carry trade. A funding ...
The currency used as the reference or second currency in a currency ...
An increase in the value of one currency in terms of another. ...
Investors can trade almost any currency in the world. Investors, as individuals, countries, and corporations, may trade in ... Read Answer >>
There are many official currencies that are used all over the world, but there only a handful of currencies that are traded ... Read Answer >>
First, remember that in the forex markets investors trade one currency for another. Therefore, currencies are quoted in terms ... Read Answer >>
The forex market allows individuals to trade on nearly all of the currencies in the world. However, most of the trading is ... Read Answer >>
In the forex market, currencies from all over the world can be traded at all times of the day. The forex market is very liquid, ... Read Answer >>
All currencies are traded in pairs. The first currency in the pair is called the base currency while the second is called ... Read Answer >>