Forex Walkthrough

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Level 1 Forex Intro - Currencies

The majority of trading in forex is concentrated in the world's major financial centers, such as London, New York and Tokyo. Average daily volume in these markets is enormous, exceeding $3 trillion! Typically, a lot of the activity in the forex market is done by central banks, hedge funds, institutional investors and large corporations. But success in this market doesn't depend on how big you are - it depends on your dedication to learning the fundamentals, good judgment, hard work and some common sense. This section will introduce you to the major currencies in the forex market.

Each forex transaction involves two different trades: the purchase of one currency and the sale of another. That is why forex quotes are quoted as a combination of two currencies, which is known as a currency pair. While there are many possible currency pairs, the most heavily followed and traded currencies are listed in the table below.




You may notice that the total market share adds to 200%, which is a result of currency pairs.


Currency
Market Share
USD
83.7%
EUR
60%
GBP
15.3%
JPY
13.4%
CHF
9.5%
SEK
2.2%
AUD
2.1%
CAD
1.6%
Figure 1: The most heavily traded currencies and their market share
Source: BIS Triennial Survey, 2004

Not surprisingly, the U.S. dollar (USD) is the most followed and traded currency in the world, with nearly 84% of the market share in 2004. Therefore, later on in this tutorial we examine the relationships between the U.S. dollar and many of its major currency counterparts, such as the euro and the yen. (Learn the essence of currency exchanging in How do I convert dollars to pounds, euros to yen, or francs to dollars, etc.?)

In addition, although there are numerous currency pairs available, it can become extremely confusing to try to follow and trade several currencies at one time. It is usually recommended to get to know one major currency pair and practice trading that currency pair alone. But first, before you can begin to analyze major currency pairs, you need to learn the basics of the market, such as learning to read a Forex quote, which is discussed in the next section.


Reading A Quote
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