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
TradingEvery day, trillions of dollars trade in the forex market. Here are a few of the most popular currencies, and some characteristics for each.
TradingThe forex market has a lot of unique attributes that may come as a surprise for new traders.
TradingOne of the biggest sources of confusion for those new to the currency market is the standard for quoting currencies. In this section, we'll go over currency quotations and how they work in currency ...
TradingCurrency fluctuations often defy logic. Learn the trends and factors that result in these movements.
TradingEvery currency has specific features that affect its underlying value and price movements in the forex market.
TradingLearn about the forex market and some beginner trading strategies to get started.
TradingCurrency fluctuations are a natural outcome of the floating exchange rate system that is the norm for most major economies. The exchange rate of one currency versus the other is influenced by ...
TradingRegardless of the reason, forex is an integral part of 21st century finance. And the more widely used and reliable the currency, the greater the likelihood of people buying and selling it every ...
MarketsCentral banks and financial institutions hold large amounts of foreign money as their reserve currency.
ETFs & Mutual FundsThere's always a bull market somewhere - and now you can find it with currency ETFs.