- Market
- Forex
The foreign exchange (forex) market is a global decentralized market for the trading of currencies. It is the largest and most liquid market in the world with a daily dollar volume of $6 trillion.
Trading is not centralized at a physical location or an exchange, as with the equities and futures markets. Instead, various financial institutions trade currencies between themselves via a global network known as the interbank market. This market runs 24 hours a day, 5 days a week (from 5 p.m. EST on Sunday until 4 p.m. EST on Friday).
Forex is the largest and most liquid financial market in the world, with trillions of dollars traded daily. As an OTC (over-the-counter) market with no centralized exchange, it is also one of the least understood. In this article we’ll guide you through the key points you should know before you participate.
The first major forex market was launched in Amsterdam in the 17th century, where currencies were exchanged between parties from England and Holland. In the early 19th century, currency exchange was a major part of the operations of Alex. Brown & Sons, the first investment bank in the United States.
The Bretton Woods Agreement in 1944 required currencies to be pegged to the US dollar, which was in turn pegged to the price of gold. The agreement was made in order to prevent competitive devaluations of currencies and to boost international economic growth.
In 1971, the Bretton Woods Agreement collapsed after US President Richard Nixon announced a suspension of the US dollar’s convertibility into gold. By 1973, the world’s major currencies began to float freely against each other.
In the mid-1980s currency trading took place using a system called Reuters Dealing that allowed banks to get currency quotes from each other in real time. Forex trading began to enter the mainstream in the late 1990s. This was driven by widespread access to personal computers and the internet, along with brokers offering leveraged currency trading via their software platforms. Prior to this, the forex market had largely been the domain of major banks and financial institutions.
Currency Pairs:
- EUR/USD: The Euro paired with the U.S. Dollar represents the two large global economies that are widely traded.
- GBP/USD: The British Pound paired with the U.S. Dollar, known as “Cable,” is marked by its high liquidity.
- CHF/JPY: The Swiss Franc paired with the Japanese Yen, a cross-rate representing two safe-haven currencies.
- USD/JPY: The U.S. Dollar is paired with the Japanese Yen, a significant, heavily traded pair, especially in Asia.
- CAD/JPY: The Canadian Dollar pairs with the Japanese Yen, which is often influenced by commodity prices such as oil.
- AUD/USD: The Australian Dollar is paired with the U.S. Dollar, which frequently reflects changes in commodity markets.
- NDZ/USD: It seems to be a typo; it should be “NZD/USD,” which is the New Zealand dollar paired with the U.S. dollar, known for its relation to dairy commodity prices.
- EUR/GBP: The Euro paired with the British Pound, reflecting the economic interplay between the Eurozone and the U.K.
- GBP/CHF: The British Pound is paired with the Swiss Franc, which is often seen as a gauge for European stability.
- USD/CHF: The U.S. dollar is paired with the Swiss dollar, another pair where the Swiss dollar is considered a haven.
- CAD/CHF: The Canadian Dollar paired with the Swiss Franc, mixing a commodity-driven economy with a safe-haven one.
- AUD/CHF: The Australian Dollar paired with the Swiss Franc, combining commodity exposure with a safe-haven currency.
- NZD/CHF: The New Zealand Dollar pairs with the Swiss Franc, which is often affected by global risk sentiment and dairy prices.
- EUR/CHF: The Euro pairs with the Swiss Franc, which is closely watched for interventions by the Swiss National Bank.
- GBP/JPY: The British Pound pairs with the Japanese Yen, which is known for its volatility and nicknamed “the Dragon.”
- USD/CAD: The U.S. Dollar is paired with the Canadian Dollar, often called “Loonie,” and influenced by oil prices.
- AUD/JPY: The Australian Dollar is paired with the Japanese Yen, a famous currency in the carry trade.
- NZD/JPY: The New Zealand Dollar paired with the Japanese Yen, another carry trade pair with ties to commodity prices.
- AUD/NZD: The Australian Dollar, paired with the New Zealand Dollar, is often traded based on regional economic differences.
- NZD/CAD: The New Zealand Dollar paired with the Canadian Dollar, a minor cross pair influenced by commodity prices.
- AUD/CAD: The Australian Dollar is paired with the Canadian Dollar, a significant commodity currency pair.
- EUR/JPY: The Euro paired with the Japanese Yen, a widely traded cross that serves as a barometer for global risk.
- GBP/CAD: The British Pound paired with the Canadian Dollar, offering insights into U.K. and Canadian trade relations.
- UR/CAD: The Euro paired with the Canadian Dollar, a cross-rate combining European and North American economic signals.
- EUR/AUD: The Euro paired with the Australian Dollar, reflecting the economic dynamics between Europe and Australia.
- GBP/AUD: The British Pound paired with the Australian Dollar, a pair sensitive to global trade and finance changes.
- GBP/NZD: The British Pound is paired with the New Zealand Dollar, which is known for its significant price movements.
- EUR/NZD: The Euro paired with the New Zealand Dollar, representing a mix of the Eurozone and the South Pacific economies.
