Forex relates to the process of exchanging one currency for another with the purpose of making profits off the change in the prices of them. Forex is the largest market in the world by far, bigger than the stock market or any other, and there is very high liquidity in the forex trading market. So, the forex market attracted beginners trader and experienced alike.
The total value of daily transactions goes approximately $4 trillion. Basically, this means that the forex market has the highest liquidity in the world and that anyone can buy almost any currency he wishes in high volumes during the time the market is open. The forex market is free 24 hours, five days a week – Monday to Friday. Trading begins with the opening of the market in Australia, Asia, Europe to follow and then the USA until the markets close.
Forex Pairs Groups
To make it easier for you to understand which pairs match the best to one another, they are packed together in groups. There are three significant categories of currency pairs:
The most liquid forex pairs, of course, are the major pairs, as they are the most heavily traded pairs in the world. They include the GBP/USD, USD/CAD, USD/JPY, AUD/USD, USD/CHF, EUR/USD, & NZD/USD pairs. You might notice that in each currency pair listed, the US dollar (USD) is included as one of the forex pairs.
The minor currency pairs include markets that, while not quite as liquid as the major forex pairs, are still very liquid. For example, the most traded minor currency pairs include the JPY, GBP, & EUR currencies. The US dollar is not included in the minor currencies. They include the EUR/JPY, EUR/GBP, CHF/JPY, GBP/CAD and many more.
Finally, the exotic currency pairs include currencies such as the ZAR (South African rand) & the MXN (Mexican peso). These pairs tend to be much less liquid, meaning there isn’t much trade volume, and are more often than not, traded as long-term investments. With the lack of volume, these pairs quite often have very large spreads.
Forex Basic Terms
The most popular pair traded is the Euro vs. The American Dollar, or EURUSD. The currency on the left is called the main or the base currency, and it is the one we wish to buy or sell; the one on the right is the secondary currency, and it is the one we use to make the transaction. Each pair has two prices - the price for selling the base currency (ask) and a price for buying it (bid). The difference between them is called a spread, and represents the amount broker/ company charge to open the position.
Some of the main terms of the forex are Going long and Going short, which stand respectively for ‘buying’ and ‘selling’. A trader who speculates the market will rise is called a ‘Bullish Trader’, while on the other side stands the ‘Bearish Trader’, who is more on the defensive side. In accordance, the terms ‘Bull Market’ and ‘Bear Market’ are used to describe the way the market goes.