Currencies In Foreign Exchange Trading
There are those who think that foreign exchange trading, or Forex, is relatively complicated (as opposed to trading stocks or commodities for instance). This is mainly due to the fact that numerous currencies are bought and sold in transactions which may involve any forex currency pair.
It is true that some familiarization is called for and beginners should take prudent first steps, but once you get the hang of things Forex brings with it a great opportunity for generating substantial, quick profit.
Becoming a good Forex currencies trader requires at least basic knowledge of the currencies involved. If you're asking yourself which currencies these may be, the answer is that virtually any currency can be traded but there are ones more commonly traded than others. In the following paragraphs you'll find an introduction to Forex currency exchange and useful information about the currencies which play major roles in it.
12 Currencies Traded
Our platform allows you to easily trade 12 currencies, 7 of which are considered to be Forex's most commonly traded currencies and the remaining five are less popular but still worthy of consideration.
The 7 Most Commonly Traded Forex Currencies Consist of:
- The US dollar (USD)
- The Canadian dollar (CAD)
- The European Union's Euro (EU)
- The Japanese yen (JPY)
- The Swiss franc (CHF)
- The British pound (GBP)
- The Australian/New Zealand dollar (AUD/NZD)
Another Five, Less Popular, Currencies Traded are:
- The Chinese yuan (CNY)
- The Mexican Peso (MXN)
- The South African Rand (ZAR)
- The Brazilian real (BRL)
- The South Korean won (KRW)
Forex Currency Exchange Basics
Forex is all about buying one currency while paying for it with another, this means that trading takes place in forex currency pairs. The most common transactions involve buying or selling US dollars, transactions in which US dollars do not take part are referred to as "cross pair" ones.
The terms used to describe a Forex trade are "base currency", "target currency", "pip" and "spread". For instance, when using US dollars to buy Japanese yen the base currency is the US dollar, the target currency the Japanese yen. You may trade on the yen when it is worth 1.2759 dollars (for example) and if the value of the Yen rises to 1.2812 dollars you stand to make a profit of 5.3$ for every 1000 yen you trade on.
The "pip" is the smallest figure in a currency's rate, in most currencies the pip will be the fourth digit after the decimal point. The pip spread, or just "spread", is the difference between the rate of the currency when you decide to begin trading on it and its rate when you closed the trading deal. You can check out the rates of forex currencies on websites and apps which display live forex currency rates. Any and all forex traders must acquaint themselves with using a currency converter forex tool which allows you to calculate rates regarding any forex currency pairs.
Getting To Know the Most Common Currencies Traded
Here are some basic facts about each of the seven most popular currencies in Forex:
US Dollars (USD)
The United States of America is the world's leading economy. This is why the USD is so important. The value of the USD rises and falls in accordance with major market parameters such as "gross domestic product", shifts in employment rates, announcements made by the US central bank and other factors.
European Union's Euro (EUR)
The European Union is a financial confederation of European nations. Members of the European Union use the Euro currency either as their sole one or along with another, local currency. The value of the Euro rises and falls more sluggishly than that of the USD, typical changes amount to 30-40 pips a day.
Japanese Yen (JPY)
Japan may be geographically small but its economy plays a major global role. The JPY tends to trade more erratically than the USD and EUR alike. On volatile days shifts in bids and ask price may amount to some 150 pips.
Canadian Dollar (CAD)
The Canadian Dollar typically shifts some 30-40 pips daily. A major factor influencing the value of the CAD is the price of crude oil (this is because Canada has vast reserves of crude oil and it is one of the main things Canada exports).
British Pound (GBP)
Also commonly referred to as the "pound sterling" or "cable". The GBP tends to swing rather wildly compared to other currencies. On a typical day its value may shift some 150 pips or even more. Shifts in value occur mostly during London and US trading sessions and less during Asian trading hours.
Swiss Franc (CHF)
The Swiss franc is considered to be a stable currency (much like the EUR). Average daily trading is typically around 35 pips.
Australian/New Zealand Dollar (AUD/NZD)
Both these currencies have a history of offering very high yields, this is why they tend to be quite volatile and their value may rise or fall substantially as a result of local market occurrences or global effects. Silver and Gold are the commodities exported by both countries and so the AUD as well as the NZD tend to rise and fall along with changes in the value of gold and silver.