Monetary units of countries with indication of type (paper, gold, silver). Monetary units of a number of foreign countries, including payment and credit documents expressed in such monetary units and usable for international accounts (cheques, bank bills etc.) Basically, the Forex currency market is the sum of all transactions made by its participants (banks, exchanges, funds, investment, brokerage and external trading firms, as well as private persons, i.e. traders) to exchange some types of currency. Each second, the Forex market processes thousands of transactions, bringing profit to participants. The Forex currency market has the following classification of currency types: Freely convertible currencies have no limit on financial transactions of any kind, may be used by residents and non-residents of a country, and can be converted into any foreign currency; Partially convertible currencies are usually those with a number of restrictions on use by non-residents and a specific range of allowed transactions. Thus, most Western European currencies are partially convertible; restrictions on use by non-residents were removed in 1958, and now any amount on an account in such currencies may be converted to a freely convertible equivalent; Non-convertible currencies have restrictions for both residents and non-residents barring a number of financial transactions. They are not convertible and are used only inside their specific countries. For instance, non-convertible currencies are used in developing and dependent countries, and tied to the currency of a metropolitan country that sets exchange rates to give itself an advantage. Non-convertible currencies are not used on the Forex market. The Forex currency market has two types of operations: buy and sell; each currency has demand and supply, allowing transactions with no real restrictions on volume or time. The Forex currency market also entails regulation of the exchange rates of various countries by balancing supply and demand.
USD – the U.S. dollar. No doubt the backbone of the Forex market. Traders often call the USD the buck, the greenback, the dolly.
EUR – the euro, common currency for the European space, second on Forex in terms of popularity. Before the euro, the DEM Deutschmark, Germany’s national currency, took its place.
GBP (Great Britain Pounds) – the pound sterling, Britain’s national currency. Financier slang also includes the names sterling, pound, and cable.
CHF – the Swiss franc. The slang term swissy is used alongside the official name.
JPY – the Japanese yen. AUD – the Australian dollar, often referred to as the aussie by financiers.
СAD – the Canadian dollar.
NZD – the New Zealand dollar, also known as the kiwi among Forex currency market traders.
Another incredibly important concept on the currency market is the currency exchange, which is a key link in the chain of currency market trading services. Essentially, the currency exchange is a place where transactions are made. In this case, the currency is in free trade, shaping the process of constant currency exchange fluctuations. The main characteristic of the currency exchange is that exchange rates are shaped and noted as part of its operation, through the effect of supply and demand on the selling and buying of currencies. This very process is the main objective of the Forex currency exchange: shaping the exchange rates based on objective effects of the economic factors of specific countries. The currency exchange essentially regulates exchange rates. With the development of technology, more and more people today use the currency exchange online, trading in real time via an internet connection. The online currency exchange fulfils a number of functions besides affecting exchange rates: it lays the technical groundwork for free trade, creates and applies the rules for trading participants to enter (covering e.g. funds, business reputation), and creates the conditions and rules for making the transactions themselves. The obligation of monitoring observance of these conditions lies with the currency exchange as well. The largest currency exchanges are in London, New York and Tokyo. Thus, the online currency exchange can cover practically the entire world and provide nearly equal conditions for all currency market participants. This has made the Forex currency exchange the largest exchange in the world, with a turnover of more than several trillion dollars per day.
The group of most actively traded currency pairs are considered as Majors. They comprise the largest share of the foreign exchange market. Forex major pairs are highly liquid, since they are considered to be the most heavily traded currency pairs in the world. Major currency pairs include the most popular currency pairs, available in the market. Major part of the group includes pairs where you can find at once two of the most liquid currencies, such as U.S. dollar (USD), Euro (EUR), Japanese yen (JPY), British pound (GBP), Swiss franc (CHF), Canadian dollar (CAD), Australian Dollar (AUD) and New Zealand dollar (NZD).
The group of Minor currency pairs includes relatively less popular instruments as compared to the Major currency pairs. It is composed of currencies of rather local value, which primary liquidity is first of all provided by the world's major reserve currencies: the U.S. dollar and the Euro.
The group of Exotic currency pairs which are characterized by relatively low trading volumes and high spreads includes the least popular instruments available in the currency market. They consist of currencies which liquidity is almost entirely provided by the main reserve currencies: the U.S. dollar and the Euro.
In Forex market investors make profit on currency rate fluctuations. The stronger the rate (quotation) changes the bigger your profit or loss is. It is important to understand that a decreasing rate may be just as beneficial as the rising one in the Forex market. When the rate is increasing, you are buying the base currency for the quoted one, so that to sell it later at a higher price (trading volume is always expressed in the quoted currency). When the rate is decreasing, you are selling the base currency for the quoted one, so that to buy it later at a lower price (trading volume is always expressed in the quoted currency). Such actions constitute a complete trading operation in which you first open a buy or sell position to close it at a new price later by performing a reverse deal. Let us say the currency pair EURUSD had been falling and then started an upward correction at 1.1225. You suppose the correction will be short – lived and decide to open a sell position when the downward movement resumes. The pair starts falling after reaching 1.1286. You set a Sell Stop order at 1.1284 to sell 10 000 euros. When the price reaches that level, a short position is opened. You decide to set Take Profit order at 1.1145. When the Ask price reaches that level, Take Profit order triggers a reverse operation. You buy €10 000 at 1.1145 and take 139 points (1.1284-1.1145=0.0139). With the given volume of €10 000 (0.1 lots), the cost of 1 point equals $1. Thus, you make a profit of $139.
If you've ever traveled overseas, you've made a forex transaction. Take a trip to France and you convert your pounds into euros. When you do this, the forex exchange rate between the two currencies—based on supply and demand—determines how many euros you get for your pounds. And the exchange rate fluctuates continuously. A single pound on Monday could get you 1.19 euros. On Tuesday, 1.20 euros. This tiny change may not seem like a big deal. But think of it on a bigger scale. A large international company may need to pay overseas employees. Imagine what that could do to the bottom line if, like in the example above, simply exchanging one currency for another costs you more depending on when you do it? These few pennies add up quickly. In both cases, you—as a traveler or a business owner—may want to hold your money until the forex exchange rate is more favorable.