The Forex (Forex Market) exists due to the fact that multi-national corporations and nations need to buy and offer goods/services from outside sources. To do that, they need to exchange their house currency with that of other nations. As you understand, not all currencies have the same purchasing power so nations, banks, and corporations exchange their cash with one another simply as travelers do when traveling abroad– exact same concept, just a LOT bigger scale!
In fact, the Forex is the single biggest monetary market in the world and upwards of 1.8 trillion dollars are traded every day– between the hours of 5 p.m. EST Sunday thru 4 p.m. EST Friday. In between those hours, the Forex market is open and there are always brokers out there happy to buy and sell positions. However, unlike the NYSE, there is no central exchange however rather an informal network of computers provided by financial investment houses, reserve banks, and other big gamers which help facilitate the trades.
The Forex market in fact trades dozens of various currency pairs. The base currency is the first in the pair and was utilized to establish the trading account. The counter currency is the 2nd in the set and is often described as the “terms” currency. A normal lot is $100,000 and a financier may be thinking about the currency set USD/CAN for circumstances. That suggests that the investor would purchase $100,000 worth of Canadian dollars with the base currency (USD) at the present currency exchange rate in order to open a position.
While there are literally dozens of various currencies exchanged on the Forex, financiers are advised to focus just on currencies that trade with the USD. The USD backs almost 90% of all trades on the Forex and it is among 8 main gamers in the market, including:
· U.S. Dollar (USD)
· British Pound Sterling (GBP)
· Euro (EUR)
· Canada Dollar (CAD)
· Australian Dollar (AUD)
· Swiss Franc (CHF)
· New Zealand Dollar (NZD)
· Japanese Yen (JPY)
By large volume alone, the USD/EUR and USD/GBP are the 2 most popular currency sets on the Forex based upon volume. However, this does not necessarily imply that they are always the very best financial investment alternatives at any given time. The currency sets with the greatest pip motion are also the most unstable and dangerous. The technique for any financier is to identify the currency pair that has the best potential for pip movement with the least volatility. Only analysis of technical information can offer that details but there are brokers out there providing this information as part of their service plan so it is a great concept to see what is provided prior to joining any specific broker.
Once again, the most popular currencies are not always going to be the most successful so make sure to examine a lot of charts and track rate movements between different pairs over the very same time period to help discover the finest pair for you which will provide the best earnings capacity and the least volatility.