All About Trading The Forex Exchange Markets
Overview of The EU Performance in Forex Futures Trading
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Forex, also called the FX foreign exchange market is the largest and most liquid trading market in the world. Unlike the futures or stock exchange Forex does not have open trading places or closing times. Instead, trillions of dollars are traded and sold every day, electronically. FX markets never close and trading takes place 24-hours a day during the business week.
There are 6 major currency pairs that are used and traded each day on the Forex markets. These six pairs account for up to 90 percent of the trading activity each and every day. These include the euro and the US dollar (EUR/USD), the Japanese yen and the US dollar (JPY/USD), the US dollar and the Swiss Franc (USD/CHF), the Australian dollar and the US dollar (AUD/USD), the British pound and the US dollar (GBP/USD) and the US dollar and the Canadian dollar (USD/CAD).
Each of these currencies operates a little differently in the Forex and fluctuates a little on a daily basis. The Euro is very important in the foreign exchange currency. It does not just represent one country, but a total 12 national countries in Europe. The countries that are members of the European Union and recognize the Euro as currency are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, and Sweden. Out of the fifteen members of the European Union, only two do not recognize the Euro as the official currency. These are Denmark and the United Kingdom. Sweden only began using the euro in 2005.
The Euro is comparative to the U.S. dollar and is sometimes near par value vs the dollar. In 1999, all of the European countries locked the value of their own currencies in relation to the euro. This means that all of the currencies were worth about the same as the euro. These countries soon began using the euro as their currency so that the money could be used across the borders and used without the need for getting other forms of currency. This transition helped make the euro worth more and become a more accepted form of currency.
The use of a single currency across many countries has both advantages and disadvantages in relation to the Forex. One of the biggest benefits of the euro is that the exchange rate is lowered, thus making investment across borders easier. There are risks in the changes in the value of the currency. This means that companies find it risky to import or export outside their currency zone and that profits could be lowered. Using a unified form of currency eliminates this worry. It creates a more risk free import and export area, which already relies heavily on intra-European exports.
Another benefit of many countries using the Euro is it eliminates the need for currency conversion fees. When a person or business has the need to exchange currency, there is a fee involved. Most financial institutions charge fees for conversion and while it is a relative small amount, it adds up. Multiple changes add up all across Europe. Eliminating these fees helps the economy in the long run.
When looking at the Forex and the way the euro performs, it is also important to remember that using one form of currency creates a deeper financial market. This means the European markets are much more liquid vs the past. There is more competition with the euro not that it is more widely accepted and used. The idea that it will created a deeper financial market means it will affect they way the consumers spend the currency all across the continent. This will in turn, lead to increased amounts of money that is spent on the stock market.
The Euro has become one of the major currencies in the world, with euro's trading becoming more and more popular with forex exchange markets traders and day traders. The Forex is dominated by the U.S. dollar, but the Euro is strong too. The use of euros currency in the European countries is appealing in many ways and it is widely accepted all over the world. Both businesses and individuals benefit from the use of Euro's in foreign nations without the worry of having the exchange the money as much as in the past.
Defining Exotic Currencies and Their Impact on Forex Markets
The exotic currency is defines as a currency with little liquidity and limited dealing. The exotic currency is neither a minor nor a major currency. Some of the currencies that are considered minor are the Australian dollar, the Canadian dollar and the New Zealand dollar. Some of the currencies that are considered major are the Japanese yen, the Euro, the British pound, the Swiss francs and the German mark. All exotic currencies play a very important role in the forex market and are just as important as all the major currencies.
The foreign exchange market has played a very important role as a major investing tool for financial institutions, most major banks and for the central banks like the United States Federal Reserve. The foreign exchange market has earned very substantial profits by these large international banks and financial institutions.
All nations are now becoming more dependent on one another due to the increase in international trading and foreign investments. The state of a country's economic activity can cause the country's currency to fluctuate, considering how the economic factors can alter the structure of a currency's interest rate. The monetary health of a particular country depends on whether the currency either appreciates or devalues.
Some banks make between 40-60% of their profits from trading forex currencies when they allocate about one-quarter of their funds into the forex foreign exchange market. Until recently, the American public has been unaware of the forex market because the foreign currency market had not been financially accessible to the general population of traders and investors; also, because of the minimum account requirement, which was beyond the means of the average trader or investor. Now that the situation has changed, instead of needing a minimum of $200K to open an account, a mere $10K can be used to open an account.
The foreign exchange market is dominated by these five major currencies: the U.S. dollar (USD), the British pound (GBP), the Japanese yen (JPY), the European euro (EUR) and the Swiss franc (CHF). All five of these currencies rank highly in their activity and popularity thus accounting for more than 70% of trading in North America alone. Other currencies that are traded, though not as easily, are the more exotic currencies including the New Zealand dollar (NZD), Australian dollar (AUD), Canadian dollar (CAD) and the French franc(XPF). The minor currencies, which can also be considered as exotic currencies, account for between 3-7% of the total market volume. Together, all the major and minor currencies represent all the hard currencies that are currently being traded in the FX market.Top three most traded currency in the world:
The U.S. dollar Index is the world currency which gives relative strength to the Dollar. The Index reflects the statistical weaknesses or strengths of the trend of the U.S. dollar (USD). If the index figure is fairly large, then the U.S. Dollar is stronger, likewise if the index figure is smaller, then the U.S. dollar has become weaker. The Dollar has become weaker over the past two decades, mostly because of the world's low opinion of financial policies resulting in large budget deficits.
The European euro and Europe has taken its first steps toward what many economists call "Euroland" with its single currency, the Euro. Europe's eleven nations that use the euro are: France, Spain, Belgium, Italy, Portugal, Austria, Finland, Luxembourg, Ireland, the Netherlands and Germany. These eleven nations consist of about 300 million people and also account for almost 20% of the worldwide economy. The European Union in addition represents America's largest foreign market, which is twice the size of Japan and Canada combined. Trade flows between Europe and the United States has been roughly in balance for over nearly a quarter of a century, whereas in Asia, the U.S. runs large trade deficits.
Japan, along with its Japanese yen, continues to be one of the most undisputed global economic powers of today's market place. The Japanese government has been applying great energy and resources into developing its economy into one of the biggest economic powers in the world. There is significant oriental trading especially Japanese Yen trading which is one of the most actively traded international currencies.
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