Currencies Are Traded against One Another in Forex Market

It is money in different currencies that you trade in forex market. You trade forex by buying one currency and at the same time selling another currency. The currencies are traded through a forex broker in pairs, such as EUR/USD. Here the currency pair EUR/USD means the relative value of euro(EUR) against the US dollar(USD). If you buy EUR/USD, that means you buy in Euros and at the same time sell Us Dollars.

The most traded currency pairs in the world are called the Majors. They are EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF and USD/CAD, involving the major currencies euro(EUR), US dollar(USD), Japanese yen(JPY), pound sterling(GBP), Australian dollar(AUD), Canadian dollar(CAD), and the Swiss franc(CHF). About 85% of forex market volumes are traded between the Majors.

Different Level of Forex Market and Participants

There are different levels of forex market and participants. Trades between the largest commercial banks and securities dealers accounts for 53% of all transactions, followed by the small banks, large multi-national corporations, hedge funds, insurance companies, investment management firms and some retail Forex brokers.

Most of The Forex Transactions Are Speculative

While there are true demands for foreign exchange, such as buying goods from/selling goods to foreign countries, or investing in overseas market, about 70% to 90% of the foreign exchange transactions are speculative. That is to say, the banks, hedge funds or individuals who bought or sold the currency are not trade currencies for their own use, but only want to make a profit from the fluctuations of exchange rates.

It is not strange to see that because the features of Forex Market make it a good financial market for the speculators to make huge profits from it. I will tell you why in my next post.