Forex Currencies with ForexGen
Forex Currencies with ForexGen
The US economy is the largest in the world. That is in the majority of Forex transactions traders involve the US dollar against another currency.
The German mark, the Japanese yen, sterling (British pound) and the Swiss franc have been the basic currency of a lot of trading transactions. Each of these markets has very distinct features.
The German mark has been replaced by the Euro. The German mark was a tower of strength. The traditional role of the Bundesbank was undermined after unification with the former East Germany and it has now been replaced by the European central bank.
The Japanese yen has been highly changible in recent years. In October 1998, the most dramatic currency move in many years was seen as the dollar fell some 15% in just a few days against the Japanese yen.
The Swiss franc serves as does the dollar from time to time, as a "safe haven". This is due to the isolation of the Swiss economy, its independent and neutral political acts and the secrecy of Switzerland's banking system.
The British pound, always a big part of foreign exchange markets and the first currency to be Forex market traded actively against the US dollar via the transatlantic cables (hence the description "cable"), has traditionally weakened against most other currencies. This tendency has been reversed in recent years and the pound will remain an interesting currency as it takes its place as one of the few key European currencies.
European Currencies
European currencies have gained in importance in the last twenty years and have suffered some major crises due to the continued attempt to peg exchange rates to each other. The key to Continental European currencies has been the German mark-French franc Axis that was seen as the backbone of the common currency. The Benelux countries have benefited from long-term stability as well, whereas most Mediterranean and Scandinavian currencies have fluctuated wildly against this European core. The introduction of a common currency in 2001 attracts big changes to foreign exchange trading in Europe. As early as 1998, the participating currencies were fixed against each other and this has forced many European banks to revise many of their trading assets. Overall, however, we do not consider the introduction of the Euro to be particularly detrimental to foreign exchange markets. A feeble Euro has taken the place of the mark and non-participating European currencies will become more inconstant and more exposed to speculative attacks. This will spell a new dawn for sterling trading that will become the main national currency market (together with the Swiss franc) in Europe.
Arising markets
So-called exotic currencies have long offered enormous profit potential as well as very substantial risks. The most noticeable approach has been to single out weak, but fixed currencies for brutal speculative attacks, leading to large devaluations and extensive economic problems for the countries involved. The reason that many emerging currencies are artificially supported to the US dollar or other currencies is normally to force local monetary authorities to act with more discipline and to persuade holders of the currency against the risk of depreciation. Unfortunately, it has proven nearly impossible for most emerging countries to maintain the necessary discipline to justify stable currency levels and the result is nearly always a dramatic devaluation. In leveraged trading, such devaluations offer big profit potential, but in the intermediate periods where the currency is stable, high interest rates will benefit investors with the nerve to hold onto the currency.
This makes the emerging markets very tricky to Forex market trading and while nobody should Forex market trading any foreign exchange market without a solid grasp of the technical aspects, this is even more true in emerging markets. Seen from a commercial company's point of view, however, failure to protect against the risks in such markets can be fatal. Mainly, interest focuses on South East Asia and South America, but there is no reason that both the African Continent and Eastern Europe should not provide interesting markets in the future.
And some words about of how currencies are traded in the Forex market.
In the Forex, currencies are traded in dollar amounts called Lots. One lot is equal to $1,000, which can control $100,000 in currency. This is known as the "margin". Yes with $1000 only you can control $100,000 worth of currency.
Currencies are always traded in pairs in the Forex market. Each pairs has its own unique notation that expresses what currencies are being traded. The notation for a currency pair will always be in this sort of format:
ABC/XYZ
Now ABC/XYZ is not a real currency pair, its just an example of the notation used to identify a currency pair. In this example of ABC/XYZ, ABC would be the symbol for one countries currency and XYZ would be the symbol for another countries currency.
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
These are the symbols you will most commonly see in a Forex market platform. Of course there are many other symbols for other currencies as well, but these are the most commonly traded ones.
A currency can never be traded by itself. So for example you can never trade a JPY by itself. You always need to compare one currency with another currency to make a trade possible. This is the heart of the Forex market.
Numerator and Denominator
The Numerator is the top part of the fraction and the Denominator would obviously be the bottom part of it. Lets take an example with EUR/USD
EUR would be the Numerator (the first currency which is on top)
USD would be the Denominator (the currency that comes below or after the EUR)
The numerator is called the base currency and the denomiator is known as the counter currency.
Now whenever you place a "BUY" order in a Forex platform for example with the EUR/USD pair, what you are actually doing is buying the EUR and selling the USD. Buying in the Forex is known as going "LONG".
On the other hand if you were to sell the pair, you would be selling the EUR and buying the USD. This is known as going "SHORT" exactly like short selling in a stock market. (Short-selling is where you sell a stock/currency/commodity first and then try to buy it back at a lower price).
If you buy or sell a currency pair, you would be buying/selling the base currency (the one on top, NUMERATOR).
It would be the exact opposite of what you did to base currency if you were to sell a currency pair.
You are always buying one currency (the base) and selling another (the counter). If you sell the pair you are simply flipping which one you buy and which one you sell. The transaction is eventually the same.
The great thing about the Forex market unlike trading stocks is that you can always short sell with no restrictions. The good news here is that you can make money when the market drops as well as when it rises. Unlike the stock market where the market has to go up for you to make money, you can make money in both directions trading in the Forex.
