Forex glossary of terms
Forex currency (currencies)
To meet the demand of multi-national trade, the foreign exchange market serve as a platform for people to exchange their currencies for foreign currencies. Exchange rate for each currency differs because nations have different buying power.
Among other main currencies traded are U.S. Dollar, Great Britain Pound, Euro, Canadian Dollar and Japanese Yen. To make things simpler, the currencies are assigned with a three letter code called the ISO 4217.
Below are the abbreviation and symbol for major traded currencies:
1) United States dollar (USD)
2) Eurozone euro (EUR)
3) Japanese yen (JPY)
4) British pound sterling (GBP)
5) Swiss franc (CHF)
6) Australian dollar (AUD)
Currencies are traded against each other in pairs and the spread between the two currencies means profit for a forex investor. For example, a USD/JPY pair indicates that an investor wants to trade U.S Dollar for Japanese Yen. In this case, U.S. Dollar is the base currency while Japanese Yen is the 'terms' currency.
Currently, the U.S. Dollar backs almost 90% of all forex trade and has been the most traded currency for decades. The most popular currency pair is USD/GBP and USD/EUR. Euro has a relatively short period of establishment and already, it is the second most traded currency after the U.S Dollar. Some investors even foresee Euro to overtake the U.S. Dollar in view of its weakening value. According to the book 'Forex Patterns and Probabilities' by Ed Ponsi, "The Euro made dramatic gains against the U.S. dollar in 2002, 2003, and 2004, and during that time the value of the Euro rose from about US$0.85 cents to above US$1.35."
The Canadian Dollar is another currency that appreciate substantially against the U.S. Dollar as well as other currencies. Time.com published on December 2007 that, "One Canadian dollar was buying 14% more Euros than it had at the beginning of January, 16% more Pounds, and 21% more Yen," calling them 'Canadian Newsmaker of the Year.
A major currency in Asia is the Japanese Yen and a fast rising Chinese Yuan. The Yen is hit hardly against the U.S. Dollar in the first quarter of 2008. However, it still provide a less risky and low volatillity option for investors compared to the greenback.
Knowing the background of each currencies and studying past performances will enable forex investors to profit from foreign currency trading. Apart from referring to economic indicators and technical analysis to gauge currency performance, it takes a considerable amount of time to get familiarize with the various currencies and their past behavior for a complete picture of the market.
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