Forex Education | What is Forex?
In the forex market, there are four currency pairs considered to be the most heavily traded: EUR/USD, USD/JPY, GBP/USD, USD/CHF. Some people consider the major pairs are those that are made from the following currencies:
EUR – Euro Area single currency
GBP – Great Britain Pound (Cable)
AUD – Australian Dollar (Aussie)
USD – United States Dollar (Greenback)
JPY – Japanese Yen
CHF – Swiss Franc
Carry Currency Pairs
Carry pairs, are currency pairs formed by a country whose currency has high interest rate and one that has low interest rate. Their major characteristic is that they are traded all over the world and are very volatile.
It is easier to grasp if you remember that these are not stable pairs. But their evolution depends on the evolution of the interest rate. For the moment, the most important examples in the category are: USDJPY, EURUSD, AUDJPY, NZDJPY, AUDUSD and EURAUD.
We often found the information that the EURJPY pair is also included in the carry pairs category. We are lead to believe that the case is no longer applicable given the fact that the difference between the interest rates is becoming smaller and smaller: 0, 5% to EUR and JPY tends to be 0%.
It is important to point out that it is not advisable for beginners to scalp with carry pairs because at times spreads widen very quickly and even with a stop-loss order it is not enough to avoid loss. Experienced scalpers are also advised to trade those using typical trends, following strategies to exploit breakouts and other sharp movements.
Exotic currencies are those formed by at least one exotic country’s currency. Their important characteristic is that they are rarer, less liquid and less well-known forex pairs than the other two previous categories of currency pairs. We can enumerate the pairs: USDSEK, USDZAR, USDTRI, NOKUSD and BRLUSD or the Russian ruble.
The Forex Market is unique because of the following characteristics:
· Its huge trading volume representing the largest asset class in the world, leading to high liquidity;
· Its geographical dispersion;
· Its continuous operation: 24 hours except weekends;
· The variety of factors that affect exchange rates;
Low margins of relative profit in comparison to other markets of fixed income, and
· The use of leverage to enhance profit and loss margins with respect to account size.
According to the Bank of International Settlements, the preliminary global results from the 2013 Triennial 758. 758. Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity shows that trading in foreign exchange markets averaged $5.3 trillion per day in April 2013. This is up from $4.0 trillion in April 2010 and $3.3 trillion in April 2007. Foreign exchange swaps were the most actively traded instruments in April 2013, at $2.2 trillion per day, followed by spot trading at $2.0 trillion.