This article focuses on the size of the forex market and the importance of certain currencies.
The forex market is different to other financial markets in that it does not have a physical location or central exchange, like the New York Stock Exchange. It operates on electronic trading methods between parties, hence it is called an interbank market.
This is an extremely popular financial market which is able to be accessed by anyone from anywhere in the world. Individuals and huge corporations are able to trade next to each other. You have the facility to trade with anyone, based on the prices they are offering and the reputation of that entity.
The currency most actively traded in the forex market is the US dollar. The Euro follows a close second, and then the Japanese yen. There are eight major currencies in the market which make up approximately 75% of transactions in the market. The US dollar forms part of at least half of these trades. This means that it is vital you get to know everything you can about the US dollar and should include it in your currency pairs, particularly if you are a newcomer to this financial market.
The fact that the US dollar is included in most currency pair transactions is not the only reason why you should be aware of its place in the trading world. There are several other reasons for it.
- The US boasts one of the largest global economies
- It is considered to be the world’s reserve currency
- It has a fairly stable political climate
- The US offers the international market one of the most liquid and the largest financial market
- Many international financial transactions are done in the US dollar, such as oil and gold prices
There are various forms of trade that occur in the forex market. Huge commercial and financial transactions occur on a daily basis, but the bulk of the transactions done are for speculative reasons. This implies that the majority of transactions are undertaken by traders trying to make a profit from buying and disposing of currencies at the interbank rates. It has been estimated that speculative trading forms at least 90% of this market. This increases the liquidity level in the market and that is an asset to traders. It means that you will not be stuck with a currency that you cannot buy or sell. You will always have someone who is willing to accept your trade.
Liquidity is extremely important to investors as it has an effect on the movements in rates over particular time periods. The liquidity in the forex market makes it possible for traders to do huge trades without any effect on the movement in price or the price of the currencies.
The market movement could change based on the currency pair you are trying to trade and the time of day you are trading. The market comprises of three major trading sessions and it is advisable that you know the time when it is best for you to trade your particular currency pairs.
The forex market size offers traders the opportunity to make money. You need to implement suitable trading plans, strategies and money management plans to ensure your success in this financial market.