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 exchange rate of a currency against the U.S. dollar (USD). ...
The currency being exchanged in a currency carry trade. A funding ...
The second currency quoted in a currency pair in forex. In a ...
Currency is a generally accepted form of money, including coins ...
A currency that is free from legal and regulatory restrictions ...
A forex trading strategy that involves the sale of the U.S. dollar ...
The forex market allows individuals to trade on nearly all of the currencies in the world. However, most of the trading is ... Read Answer >>
The forex market is the largest market in the world. According to the Triennial Central Bank Survey conducted by the Bank ... Read Answer >>
In a currency pair, the first currency in the pair is called the base currency and the second is called the quote currency. ... Read Answer >>
When reading currency quotes, you have probably noticed that there is only a single quote for a pair of currencies. Currency ... Read Answer >>
In forex markets, currency trading is done on some of the world's most powerful currencies. The major currencies traded are ... 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 >>