Most Forex exchanges invariably involve the U.S. dollar against a different currency, as the American economy remains the biggest. Other currencies serve as the base for trade as well, such as the Japanese Yen, the British Sterling, the Swiss Franc, and the German mark. Each country's market has its own particular properties.
Euro came up to take the place of the German mark. The latter was the foundation. The European central bank has replaced the Bundesbank that has lost its past significance after the former East Germany came to reconsolidation.
The feature of the Japanese yen is its instability in some previous years. The greatest rise of this currency has happened in October 1998 when the dollar has suffered 15% reduction against the Japanese yen within a number of days.
The Swiss franc is sometimes called "a safe haven" fulfilling the same function as the dollar does. It is called like this because of the neutrality and independent policy pursued by Switzerland, its economy isolation and banking system privacy.
The British pound has always had significance for the international exchange markets but it mostly has not been stronger than other currencies. This trend has changed vice-versa lately and the British pound has become one of the most important and attractive currencies in Europe. It was the first currency that the forex market dealt with through cables crossing the Atlantic, which is why the term "cable" has appeared.
European currencies had a number of crises because of the attempts to adjust their rates towards one another artificially. French franc and German mark used to create the basis for the Continental European currencies and formed the European currency stem. The stability was useful for the Benelux countries.
Considerable fluctuations around this stem were seen in the currencies of rest of the Europe, Mediterranean and Scandinavian countries in particular. Great alterations have come to foreign exchange trading after the European common currency has appeared in 2001. A number of European banks were forced to make their trading assets reconsideration after the currencies of the countries taking part in the unification were fixed relative one another at the beginning of 1998. Still the Euro appearance is not thought to be harmful for the foreign exchange markets health. The Euro being weak has turned into mark and made non-participating European currencies less stable and more affective to speculative forces. It gives prospects for sterling along with the Swiss franc to turn into the most important European currency market.
Exotic currencies have a severe risk together with an ability to gain very high possible profits. The weak but fixed currencies can be sought much in order to carry out speculative attacks on them that may lead the countries involved to wide depreciation and economical difficulties. A number of developing currencies try to peg their currencies to the US dollar exchange rates to bring the monetary officials to order and force currency holders not to resort to devaluations. In most of the cases, it is impossible to fix the exchange rates due to indiscipline and it mostly leads to considerable depreciation. These devaluations often cause high possible profit but within the stable periods, investors mostly hold the currencies due to high interest rates.
Forex market should not have solid technical aspects grasp while dealing with foreign exchange market especially at emerging markets due to their riskiness. Inability to gain a protection against the risks of these markets can be very harmful at the outlook of the commercial companies. South East Asian and South American markets seem to be the most interesting but it does not exclude African Continent and Eastern Europe possibility to become important markets in future. forex carries out its trading through lots that are the equivalent of the dollar. The "margin" means that while the value of one lot is $1,000 you can accordingly have a control of $100,000 within the currency.
Currency trading in the forex market is usually carried out in pairs. The notation of each pair shows the rates at which its currencies are being traded. The ABC/XYZ format is always used to show the notation. Here, ABC/XYZ does not correspond to any currency pair but it does show the possible notation. ABC symbolizes the currency of one country whether XYZ shows the currency of another one.
It is impossible for the currency to be traded by itself. For instance to make sense of the trade with JPY it must be compared to any other currency but never traded by itself. This process forms the core of the forex market.
Here are some of the creal and common symbols used in the Forex market:
- 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
- NZD - The New Zealand Dollar
The most commonly traded currencies are referred to as the 'Majors':
- US Dollar (USD)
- Japanese Yen (JPY)
- Euro (EUR)
- British Pound (GBP)
- Canadian Dollar (CAD)
- Australian Dollar (AUD)
- Swiss Franc (CHF)
Most commonly traded currency pairs are:
- EUR/USD which stands for Euro / US Dollar
- USD/JPY which stand for US Dollar / Japanese Yen
- GBP/USD which stands for British Pound / US Dollar
- USD/CAD which stands for US Dollar / Canadian Dollar
- AUD/USD which stands for Australian Dollar/US Dollar
- USD/CHF which stands for US Dollar / Swiss Franc
- EUR/JPY which stands for Euro / Japanese Yen
Numerator and Denominator
The higher fraction is supposed to be the Numerator while the Denominator corresponds to its lower part. For example, in the EUR/USD pair EUR would act as a Numerator being the first or the top, whether USD being after or below is known as Denominator.
The basic currency is usually the Numerator whether Denominator is a counter currency.
Thus, when you would like to buy a currency and you will place the corresponding "BUY" order dealing with the EUR/USD on the forex platform you are considered to be selling the USD and buying EUR. "LONG" is the name for buying process. On the contrary, if you would like to sell the pair you mean that you are buying the USD and selling the EUR. This is called "SHORT" along with the same stock market process when you first sell any stock, currency or commodity trying to buy it later at a lower price, which means you use short selling.
In case you would like to sell or buy a currency pair you are going to sell or buy its Numerator (base currency or the top one), so that the base currency should be dealt vice-versa when you are selling a currency pair.
While trading, the base currently is always bought and the counter one is sold. To sell any pair, you simply specify the currency for sale and the one to buy. Finally, the transaction is equal. The absence of any restriction, while short selling, is an advantage of the forex market. Another plus is that both market rise and fall bring profit. You can earn in forex at any trends directions whether the stock market should rise in order to give profit.