Forex Walkthrough

Level 2 Markets - The Pairs

Ok, so you know what you need to do to get started in forex. You know the risk and the benefits. You know how leverage can be a double-edged sword for forex traders. Now let's take a look at the currencies that forex traders use to make their profits.

There are many official currencies that are used all over the world, but there only a handful of currencies that are actively traded in the forex market. In currency trading, only the most economically and politically stable and liquid currencies are traded in large quantities. For example, due to the size and strength of the U.S. economy, the U.S. dollar is the most actively traded currency in the world.

In general, the eight most traded currencies (in no specific order) are the U.S. dollar (USD), the Canadian dollar (CAD), the euro (EUR), the British pound (GBP), the Swiss franc (CHF), the New Zealand dollar (NZD), the Australian dollar (AUD) and the Japanese yen (JPY).

As you already have learned, currencies must be traded in pairs. Mathematically, there are 27 different currency pairs that can be traded from those eight currencies alone. However, there are about 18 currency pairs that are most often quoted by forex market makers because of their overall liquidity. These pairs are:



EUR/CAD
GBP/CHF
EUR/AUD
GBP/USD
EUR/USD
GBP/JPY
EUR/CHF
AUD/USD
EUR/GBP
AUD/JPY
EUR/JPY
AUD/NZD
USD/CHF
AUD/CAD
USD/CAD
CHF/JPY
USD/JPY
NZD/USD


The total amount of currency trading involving these 18 pairs represents the vast majority of the trading volume in the overall FX market. This relatively small number of choices makes trading a lot less complicated compared to dealing with stocks, where choices number in the thousands. (For more, see Top 8 Most Tradable Currencies.)


Now that you've learned about the major currencies that are traded on the forex market you might think you're ready to jump in head first and start trading. Well slow down, because you can't know where you're going until you know where you've been. Let's take a look at the history of the forex market and get to know the major players in today's market.


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