Liquidity: Level of activity in the financial market

Major currency pairs are more liquid than ,crosses, minor and exotic currency pairs

Major currency pairs include the US Dollar. They are seven pairs including 8 currencies.

Cross-currency(crosses) don’t include the US Dollar.

Crosses that involve major currencies are known as minors.

Exotic currency pairs include a major currency and one emerging currency(Emerging
market).

Major currency pairs:

● EUR/USD

● USD/JPY

● GPB/USD

● USD/CHF

● USD/CAD

● AUD/USD

● NZD/USD

G10 Currencies:

● USD

● EURO

● GBP

● JPY

● AUD

● NZD

● CAD
 ● CHF

● NOK

● SEK

● DKK

What is a currency pair in forex?

A currency pair is a pairing of currencies where the value of one is relative to the other. For
example, GBP/USD is the value of the British pound relative to the U.S. dollar.

What are the major currency pairs?

Major currency pairs (“majors”) are those that include the U.S. dollar and are the most
frequently traded. There are seven of them: EUR/USD, USD/JPY, GBP/USD, USD/CAD,
USD/CHF, AUD/USD, and NZD/USD.

What are the currency crosses?

Currency crosses (“crosses”) are the more frequently traded currencies that do NOT include
the U.S. dollar in their pairing. Crosses include EUR/GBP, EUR/CAD, GBP/JPY, EUR/CHF,
EUR/JPY, etc.

How many currency pairs exist?

There are HUNDREDS of currency pairs in existence but not all can be traded in the FX
market. The United Nations currently recognizes 180 currencies. If you were to pair each
currency up with another, it’s a lot.

Market Size and Liquidity

The bulk of forex trading takes place on what’s called the “interbank market“. The forex
market is considered an over-the-counter (OTC) market due to the fact that the entire market
is run electronically, within a network of banks and non-bank financial institutions (NBFIs),
continuously over a 24-hour period.
According to the International Monetary Fund (IMF), the U.S. dollar comprises roughly 62%
of the world’s official foreign exchange reserves. Foreign exchange reserves are assets held
on reserve by a central bank in foreign currencies.

Reasons why the U.S. dollar plays a central role in the forex market:

● The United States economy is the LARGEST economy in the world.

● The U.S. dollar is the reserve currency of the world.

● The United States has the largest and most liquid financial markets in the world.

● The United States has a stable political system.

● The United States is the world’s sole military superpower.

● The U.S. dollar represents about half of international loans and bonds. Lots of
countries and foreign companies borrow in USD.

● The U.S. dollar is the medium of exchange for many cross-border transactions.

Main functions of the forex market

● Transfer funds from one currency of a country to another currency.

● Provide short-term credit to finance trade between countries.

● Avoid or “hedge” against foreign exchange rate fluctuations from when a transaction
is initiated and when payment is received.

● Speculate: most currency trading is based on speculation. Most of the trading volume
comes from traders that buy and sell based on the short-term price movements of
currency pairs. This makes market liquidity, which is the ability to buy or sell a large
quantity of something with minimal price impact, very HIGH.

Popular Ways to Trade Currencies

Futures: contracts to buy or sell a certain asset at a specified price on a future date.
Options: a financial instrument that gives the buyer the right or the option, but not the
obligation, to buy or sell an asset at a specified price on the option’s expiration date. If a
trader “sold” an option, then he or she would be obliged to buy or sell an asset at a specific
price at the expiration date

ETF’s: currency ETFs allow ordinary individuals to gain exposure to the forex market
through a managed fund without the burdens of placing individual trades. ETFs are created
and managed by financial institutions that buy and hold currencies in a fund who offer shares
of the fund to the public on an exchange allowing you to buy and trade these shares.

Spot Fx: Retail, CFD & Spread Bet.

Spread bet: is a derivative product, which means you don’t take ownership of the underlying
asset but speculate on whichever direction you think its price will move up or down

CFD: contract for difference. track the market price of an underlying asset so that traders can
speculate on whether the price will rise or fall.

A CFD is basically a bet on a particular asset going up or down in value, with the CFD
provider and you agree that whoever wins the bet will pay the other the difference between
the asset’s price when you enter the trade and its price when you exit the trade.

Forex trading can be defined as the process of speculating on currency prices to try and make
a profit. The value of a currency is influenced by

● Economic events
● Political events
● Geopolitical events
● Trade and financial flows

If you want to buy (which actually means buy the base currency and sell the quote currency),
you want the base currency to rise in value and then you would sell it back at a higher price.
In trader talk, this is called “going long” or taking a “long position.” long = buy.

If you want to sell (which actually means sell the base currency and buy the quote currency),
you want the base currency to fall in value and then you would buy it back at a lower price.
This is called “going short” or taking a “short position”. short = sell.
The bid is the price at which your broker is willing to buy the base currency in exchange for
the quote currency. If you want to sell something, the broker will buy it from you at the bid
price.

The ask is the price at which your broker will sell the base currency in exchange for the quote
currency. This means the ask price is the best available price at which you can buy from the
market. If you want to buy something, the broker will sell (or offer) it to you at the ask price.

Buying or Selling a Cuurency Pair

Each currency belongs to a country (or region). Fundamental analysis focuses on the overall
state of the country’s economy, such as productivity, employment, manufacturing,
international trade, and interest rates.