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Foreign Exchange Market Essay

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Introduction Any time someone travels to a foreign country, chances are they needed to exchange their money, and in doing so, participated in ForEx trading. For many first time traders the Foreign Exchange market can seem very confusing. ForEx is short for Foreign Exchange, it is the market in which people can exchange currencies from all over the world (Peters, J. 2012). When someone trades on the foreign exchange market, they are buying once currency and selling another. Buying and selling occurs at the same time in the ForEx market, which is why currencies are always quoted in pairs (Peters, J. 2012). Various factors such as economics and geopolitics cause exchange rates to fluctuate, so currencies rise and fall against each…show more content…
When viewing a currency table, or deciding to trade a pair, the symbol of the currency in which you are buying and selling, for example EUR/USD. The first currency mentioned, which in this case is called the euro, is considered the base currency. The second currency listed in the pair is called the counter currency. The most commonly traded pairs are called the majors, and these include EUR/USD, USD/JPY, GPD/USD, USD/CHF, AUD/USD, and USD/CAD (Kritzer, A. 2012). Notice that the US dollar is always listed as one of the currencies in a major pair. The major pairs make up a large portion of the ForEx market, and as a result, have high liquidity (Kritzer, A. 2012). In addition to the major pairs, there is also something called crosses (Kritzer, A. 2012). Cross pairs do not contain the US dollar as a currency, but contain other major currencies, For example the Euro and the Swiss Franc – EUR/CHF. The last type of pair traded on the ForEx market is the exotics. Exotics are pairs that have one major currency, and another that is from an emerging market, such as the Singapore dollar - SGD or South African rand – ZAR (Kritzer, A. 2012). Why is Asia Different? When trading on the ForEx market with currencies from Asia, things can be a little tricky. Unlike the US and most of Europe, there is no dominant currency in Asia. Almost every country uses its own
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