The Forex Market For Beginners: What is Forex & Currency Pairs
The Foreign Exchange is the largest financial market that exists. People all around the world participate by buying currency and selling another currency simultaneously. The exchange of currencies happens when a person or entity in a country buys/sells the currency of another country.
An example of this is…
Let’s say you are traveling as an American to see Europe… As you arrive at the airport and you see an exchange office and numbers beside your respected currency (USD). These numbers represent how much the exchange office is willing to buy your currency for with their local currency. In this case it’s the Euro (EUR). You decide to buy Euro’s and sell your US Dollars. (EUR/USD): 1.199025. EUR/USD represents the value of ONE Euro measured in US Dollars. That means if the current price is 1.199025, that means for every Euro you get $1 dollar and 19 cents ($1.19).
Trading can be traced back by thousands of years. This was the start of globalization and a connected world. For us to advanced and adapt to the modern times, we started trading value for value with other regions around the world. Originating in a need to exchange goods for diverse goods such as spices, grains, fresh water and meat. We slowly began to grow a global economy.
It was only recently, in the early 1900s that, through the advances in information technology and computers that people gained an opportunity to participate in the fastest-growing financial market. Since the early 1900s, international trade and investments have increased at an extremely rapid pace. Money flowing within international capital markets is measured by the hundreds of trillions US Dollars (USD). The daily trading volume in the Forex Market as measured by Bank of International Settlements 2016 (BIS) is a reported $5.1 Trillion per day.
As you can see, there is an opportunity for everyone to participate in a free market. Everyone has an even chance at learning how to invest money into the most liquid market in the world. What people don’t see is the challenging work that must go into learning how to trade forex.
From learning the essentials of the market, terminology, risk management and mental conditioning. It’s a process that everyone goes through, but if you can stick through and persist, then the market will forever be in your favor.
Forex Currency Pairs
Unlike other financial markets like the Stock Market or Bond Market.
Choosing which currency to trade is much simpler.
There are seven main currency pairs that are most commonly traded, they are…
1. EUR/USD: Number of U.S. Dollars for one Euro, also known as “Euro-Dollar”
2. GPB/USD: Number of U.S. Dollars for one British Pound Sterling, also known as “Sterling-Dollar”
3. NDZ/USD: Number of U.S. Dollars for one New Zealand Dollar, also known as “Kiwi-Dollar”
4. AUD/USD: Number of U.S. Dollar for one Australian Dollar, also known as “Aussie-Dollar”
5. USD/JPY: Number of Japanese Yen for one U.S. Dollar, also known as “Dollar — Yen”
6. USD/CAD: Number of Canadian Dollars for one U.S. Dollar, also known as “Dollar — Loonie”
7. USD/CHF: Number of U.S. Dollar for one Swiss Franc, also known as “Dollar — Franc”
There are also currency pairs called “Cross-Currency” pairs where the USD is not one of the currencies traded. The most common ones are…
1. EUR/JPY: Number of Japanese Yen for one Euro
2. EUR/GBP: Number of British Pound Sterling for one Euro
3. EUR/CHF: Number of Swiss Francs for one Euro
4. GBP/CHF: Number of British Pound Sterling for one Swiss Franc
5. GBP/JPY: Number of British Pounds Sterling for one Japanese Yen
6. AUD/JPY: Number of Australian Dollars for Japanese Yen
7. AUD/NZD: Number of New Zealand Dollars for Australian Dollars
8. EUR/AUD: Number of Euros for one Australian Dollar
9. AUD/CAD: Number of Canadian Dollars for one Australian Dollar
A majority of the trading volume flows through only a few currency pairs… These are also the most commonly trades pairs for retail traders.
1. EUR/USD: The most actively traded currency paid. Which has accounted for 23% of all transactions in 2016.
2. USD/JPY: The second most traded pair, which resulted in 17.7% of all transactions in 2016.
3. GBP/USD: Accounting for 9.2% of all transactions, (Brexit plays an important role in its increased volatility and participation.)
4. AUD/USD: With only a 5.2% of transactions, the Aussie-Dollar has gained popularity over the past few years in the retail market.
5. USD/CAD: 4.3% of transaction with the friendly neighbors, imports and exports are drive these transactions.
What is Traden.io all about?
Our mission is to teach traders to be fully independent and learn investment management skills. We ingrain into our members an entrepreneurial mindset and help build discipline in trading and a passion for the markets. www.traden.io