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
An agreement between an asset manager and the Federal Deposit ...
The risk that a local currency cannot be converted into the currency ...
A series of domestic programs designed to help the United States ...
A program designed to reduce the time and cost of resolving failed ...
A contract between the Federal Deposit Insurance Corporation ...
The difference between an asset’s book value and the amount received ...
Learn the three major goals of covered interest arbitrage and increase your comprehension of the foreign exchange trading ...
Learn how negative externalities affect financial markets where parties to financial transactions do not pay full costs for ...
See how disposable income and discretionary income are different, with an example to demonstrate why discretionary income ...
Read about the major federal responses to the financial crisis of 2008, such as the Dodd-Frank Wall Street Reform Act and ...