FOREX Most Traded Currencies

Currencies are traded in dollar amounts called “lots”. One lot is equal to $1,000, which controls $100,000 in currency. This is what is known as the "margin". You can control $100,000 worth of currency for only 1,000 dollars. This is what is called “High Leverage”.

Currencies are always traded in pairs in the FOREX. The pairs have a unique notation that expresses what currencies are being traded. The symbol for a currency pair will always be in the form ABC/DEF. ABC/DEF is not a real currency pair, it is an example of a symbol for a currency pair. In this example ABC is the symbol for one countries currency and DEF is the symbol for another countries currency.

Here are some of the common symbols used in the Forex:

USD - The US Dollar

EUR - The currency of the European Union "EURO"

GBP - The British Pound

JPN - The Japanese Yen

CHF - The Swiss Franc

AUD - The Australian Dollar

CAD - The Canadian Dollar

There are symbols for other currencies as well, but these are the most commonly traded ones.

A currency can never be traded by itself. So you can not ever trade a EUR by itself. You always need to compare one currency with another currency to make a trade possible.

Foreign Exchange Market Types

Over-the-counter (OTC)
It is composed of commercials banks, investment banks, others financial institutions and corporations. Each bank has a separate forex trading room. They are surrounded by telephones and terminals displaying up-to-date information. Most of the forex activities take place in this market. This market caters to both wholesale and retail clients.

Exchange-Traded
Security exchanges trade in certain types of forex instruments such as futures and options. The dealing is done through stockbrokers.
Dealers can trade foreign currency through voice brokers, electronic brokerage services and directly with other dealers. Internet trading of forex is increasing. Many large newspapers quote exchange rates daily.

Foreign Exchange Market Terminology

Bid: The rate at which traders buy foreign exchange (buying rate).

Offer: The rate at which traders sell foreign exchange (selling rate).

Spread: The difference between bid and offer rates. It is profit margin.

American Terms (Direct quote): The number of dollars per unit of foreign currency.

European Terms: The number of units of foreign currency per unit of dollar.

Cross Rate: The relationship between two nondollar currencies.

Multiple Exchange Rate System: Different exchange rates for different types of transactions.

Arbitrage: Buying and selling of foreign currencies at a profit due to price discrepancies.

Speculators: Trader’s position in foreign exchange market for earning a profit.

Hard Currency: A fully convertible currency which is relatively strong and stable in value.

Convertible Currency: A currency that can be freely traded for other currencies.

Exotic Currency: Currency of developing country which is weak, unstable and unpredictable.

Foreign Exchange Rate: Price of a currency.

Discount: It exists when forward rate is less than spot rate.

Premium: It exists when forward rate is exceeds spot rate.

Black Market: Price of currency based on supply and demand conditions instead of government controls.

Disadvantages of Forex Trading

24 hours market

Although it is convenient for the trader to trade whenever it is suitable to him, it can be a rather tough job too. This is because, at times, it is not possible for an individual trader to keep track of the Forex market, 24 hours a day.

This is where a broker comes into the picture. Retail or individual investors should try taking help from a professional broker rather than doing all the dealings himself straight with the huge market.

The broker will be an experienced professional who will act as an equal in your transactions, keeping you informed and updated about minute to minute details and fluctuations, and even guide you about the conditions, when to and when not to trade in the market.

High Leverage

While high leverage serves as an advantage to attract traders to the market, it can at times also act as a disadvantage for them. With such high levels of leverage available to traders in the Forex market, comes an equally high level of danger.

This can be true for the high stake positions which carry along with them, too much risk, leading to margin calls. This is where efficient money management comes into play for playing safe.

Advantages of Forex Trading

24 Hour Trading
Forex currency trading market offers its traders with a 24 hour trading opening, wherein, a Forex investor can trade ant any time of the day, whatever suits him/her, as the market is open for trading 24 hours a day, When Asia market is close, the European market start follows by the USA market and continue by Asia market again the next day. Thus, this allows Forex traders to take positions regardless of the hour and locations. This gives the Forex traders a choice to opt for timing for the trade according to their convenience.

High Leverage
Starting from a minimum of 100:1, Forex markets offer its traders with huge amounts of leverage which means that fat profits can be produced by investing small amounts of deposits.

Highest Liquidity
There is always buyer and seller in Forex market. The Forex market absorbs trading volumes and per trade size which dwarfs the capacity of any other market. On the simplest level, liquidity is a powerful attraction to any investor as it suggests the freedom to enter or exit the market at any time. Forex traders benefit from the ability to respond to breaking news immediately. There is no other market or investments that you can ever make an exit exactly at the time you wish to.

No Commissions or fees
If dealing with a financial market on daily basis, the regular investors or traders are the ones who are really benefited by the “free of commission” trading. The currency trading market lets its traders keep a whole 100% of their trading profits.

Profit on Bulls and Bears
"Buy low sell high", this is what every investor knows and practising in whatever market. One of the most exciting advantages of Forex trading is the ability to generate profits whether in the bull or bear condition. In the Forex market, apart form buy low sell high, Forex traders can always sell high and then buy back at lower price to generate profit.

Forex instruments (types of transactions)

There are six types of transactions that take place in the foreign exchange market. They are the instruments of foreign exchange market. They are:

spot transactions
they involve exchange of currencies two day after the date of deal. The rate of transaction is known as spot rate. Spot transactions account for 60% of foreign exchange market.

Forward transactions
They involve exchange of currencies three or more days after the date of deal. It is transaction for future delivery. The rate of transaction is known as forward rate. The forward rate is used to settle the forward transaction. Forward transactions account for 10% of foreign exchange market.

Fx swap transactions
They involve simultaneous spot and forward transaction. One currency is swapped for another on one date and then swapped back on a future date. Swap transactions account for about 30% of foreign exchange market.

Currency swaps
They deal with interest-bearing bonds. They involve the exchange of principal and interest payments. They are over-the-counter instruments.

Options
They are the right to trade foreign currency in future. They are not obligations. It can be traded over-the-counter or security exchange.

Futures
It is an agreement between two parties to buy or sell a particular currency at a particular price on a particular future date. A contract is entered. It guarantees a future price for the trading of foreign exchange.

An Introduction to Forex

Forex is money denominated in the currency of another nation or group of nations. Market consists of all buyers and sellers willing to engage in exchange relationships. Exchange rate is the price of a currency. International business is transacted in forex. It is one of the hottest topics around these days. But what exactly is it, and how can the average person make good money in Forex?

Forex (foreign exchange) also called "FX". It doesn’t get the big press like stocks, options, and commodities. But the forex is the biggest market in the world and it offers investors an incredible opportunity for profit. In this we trade in currency, not in stocks and bonds.

Simply, Forex trading is just the buying of one currency and the selling of another. As exchange rates go up and down, you either make gain or lose money.

For example, let's say you are analyzing the US Dollar and the Japanese Yen. Your research seems to indicate that the US dollar is undervalued and is due for a rise in price, and at the same time you expect the Japanese Yen to lose value. In this case you would execute a trade to buy US dollars and sell Japanese yen. If you are correct and the exchange rate rises, you make a profit!

you do not have to limit yourself to only one pair of currencies. There are dozens of different currencies to choose from. But if you are just starting out, I suggest sticking to the seven major currencies:

USD - US Dollar

EUR - the Euro

GBP - British Pound

JPY - Japanese Yen

CHF - Swiss Franc

AUD - Australian Dollar

CAD - Canadian Dollar

Most small investors concentrate their trading on just these seven currencies.