One of the major reasons why Forex otherwise known as Foreign Exchange Market is very popular and still exists is the involvement of nations and bigger organizations that buy and sells currencies and commodities from external sources. In other for these transactions to take places just as the name implies, there will be an exchange of currencies between two or more countries.
The same way a traveler will exchange his local currency to the currency he resides, the same applies to banks, organizations and nations on a larger scale because the purchasing power of each currencies are not the same.
The truth is about 1.8 trillion dollars worth of transaction is done every day – trading between 5 p.m. EST Sunday till Friday 4 p.m. – making Forex the single biggest financial market worldwide. During these trading timeframe, there are always brokers on the platform that are ready to buy or sell their currency. These platform is not like the regular NYSE where exchange is centralized instead it carried out their an informal network of computers provided by central banks, investment houses and other bigger players on the platform that helps make trading possible.
Currencies trading on Forex are traded in different currency pairs. The first currency in the pair which is known as the base currency used to open the trading account while the second currency in the pair also known as the counter currency often refer to as the “terms currency”. If a trader wants to invest in a pair currency let say USD/CAN with the standard lot which is $100,000, this means that the trader will $100,000 the value of Canadian dollars which will equal to the base currency US dollars at the present exchange rate before any trade will be open.
Despite the fact that there are lots of different currencies traded on Forex, it’s advisable that traders should focus on only currencies that are paired with USD. The USD is the most traded currencies on Forex platform making it the “King of the Jungle” about 90% of the trade on Forex is in USD, topping the list of the major currencies in the market, other are:
U.S. Dollar (USD)
British Pound Sterling (GBP)
Canada Dollar (CAN)
Australian Dollar (AUD)
Swiss Franc (CHF)
New Zealand Dollar (NZD)
Japanese Yen (JPY)
The most traded paired currencies on Forex platform based on volume are USD/EUR and USD/GBP. Given the fact that they are the most traded pair currencies does not really means it best to place your investment on them always, just be aware that currency pairs that have the highest movement of pip can be very risky and volatile to invest on. One of the tactics most traders do is to find which pair of currency has better chances of pip movement and with lesser volatility. The only way to discover this trick is by using analysis of technical data which may be difficult to get, there are some brokers out there that provide this data information as part of their service package that’s why it better to know what’s included in any of the broker’s offer before signing up with them.
Remember that the most used currencies are not the ones that will make you the most money, it’s best that you carry out a good measure of analyzes on lot of charts and note the price movements among the different currency pairs over the same period of time to give you a clear vision which pair will work for you and give you the best profitable result and less volatility.