In a nutshell, foreign exchange trading is the process of exchanging one currency for another. The asset that you trade is referred to as a currency pair, which is measured by the exchange rate. This rate describes how much of one currency, (the counter currency), you need to purchase another currency (the base currency). The forex market is the most liquid of the capital markets, with more than 5 trillion in value transacted every day. Currency trading is active, 24-hours a day, 6-days a week. Before you pull the trigger on your first currency trade, you should familiarize yourself with some of the key terminology used to describe the securities traded in the forex market, how they are traded and the market liquidity. This includes information about the major currency pairs, base and counter currencies, the bid/offer spread and liquidity. Also, you should familiarize yourself with spot and forward trading and the players that are involved in trading the world’s largest capital market.
What are Major Currency Pairs?
There are six major currency pairs, they include:
According to a 2019 survey by the Bank for International Settlements, more than 72% of the currency transactions globally contain the US dollar. To be considered a major currency pair, the pair must include one of the six currencies listed versus the US dollar. If the pair does not include the US dollar it cannot be considered a major currency pair. Approximately 95% of the currency volume traded against the US dollar is versus major currency pairs. The most actively traded currency pair is the Euro versus the US dollar. This currency pair makes up approximately 28% of all volume traded each day around the globe. Currency pairs that do not contain the dollar are referred to as cross currency pairs.
Global Transaction Volume
|CURRENCY PAIR||PERCENTAGE OF VOLUME|