Active currencies for trading on the Forex money market
If you are new to trading on the money market it makes sense to trade in the more active currencies. There are two main reasons for this. Firstly you do not want to be left with a currency where there is little interest and you may have difficulty selling. Secondly the spread between the bid/ask price is likely to be narrower, making it easier to make a profit.Major Forex Currencies
There are seven major currencies, the US dollar (USD), Euro (EUR), Japanese yen (JPY) British pound (GBP), Swiss Franc (CHF) Canadian dollar (CAD) and Australian dollar (AUD).
The US dollar is the most traded currency followed by the Euro and the Yen. The Euro is the relatively new currency of the European Union although some member states, including Britain,have not changed their currency.
Forex Currency Pairs
Obviously if you are buying a currency you must also be selling another and therefore prices are always quoted in pairs, the USD/EUR being the most active. The more active a pair the narrower the difference between the bid/ask price is likely to be, with a possible spread of just two pips for the most actively traded. A pip is the smallest unit of price for a currency. Most currencies are traded to four decimal points, so that a pip is 0.0001 or 1/100 of a cent. This may seem a minuscule amount until you realise that on a standard trade of $100,000 that is $10. As each trade involves both selling one currency and buying another, the difference in the spread is the cost of the transaction and must be taken into account when calculating profit. The exception to the four decimal points is the Japanese yen which is normally traded to two decimal points.
Choosing a Currency
If you live in a country using one of the major currencies, when you first start trading it makes sense to begin with that currency. Not only are you familiar and comfortable with the currency but you are in a better position to judge its strength. The internet has a wealth of information on the financial climate of a country, but if you live there you has access to all newspaper content, as well being in the unique position of experiencing first hand changes at the consumer level.
The USD is the biggest currency traded and any trade that does not involve it is known as a cross currency. This will probably mean a wider spread. To minimise your costs include the USD as one of your currencies.
There are seven major currencies, the US dollar (USD), Euro (EUR), Japanese yen (JPY) British pound (GBP), Swiss Franc (CHF) Canadian dollar (CAD) and Australian dollar (AUD).
The US dollar is the most traded currency followed by the Euro and the Yen. The Euro is the relatively new currency of the European Union although some member states, including Britain,have not changed their currency.
Forex Currency Pairs
Obviously if you are buying a currency you must also be selling another and therefore prices are always quoted in pairs, the USD/EUR being the most active. The more active a pair the narrower the difference between the bid/ask price is likely to be, with a possible spread of just two pips for the most actively traded. A pip is the smallest unit of price for a currency. Most currencies are traded to four decimal points, so that a pip is 0.0001 or 1/100 of a cent. This may seem a minuscule amount until you realise that on a standard trade of $100,000 that is $10. As each trade involves both selling one currency and buying another, the difference in the spread is the cost of the transaction and must be taken into account when calculating profit. The exception to the four decimal points is the Japanese yen which is normally traded to two decimal points.
Choosing a Currency
If you live in a country using one of the major currencies, when you first start trading it makes sense to begin with that currency. Not only are you familiar and comfortable with the currency but you are in a better position to judge its strength. The internet has a wealth of information on the financial climate of a country, but if you live there you has access to all newspaper content, as well being in the unique position of experiencing first hand changes at the consumer level.
The USD is the biggest currency traded and any trade that does not involve it is known as a cross currency. This will probably mean a wider spread. To minimise your costs include the USD as one of your currencies.