The main reason for this volume is that many private and individual investors have entered this market, making it one of the largest markets in the world. More and more investors are entering the forex market every day.
There are six senior trading currencies on the forex market [1]:
- The US dollar (USD) - The US dollar, backed by the powerful US economy, is the most dominating of the major currencies and is a counterpart currency for the other major and minor currencies being traded in the global Forex markets. In general, all the currencies are quoted in US dollar terms and it would be present in about 86% of foreign exchange market transactions. Most of the commodities, as well as the big stocks of the fast-moving consumer goods, are traded in the form of US dollar, for example, metals, oils, etc that's why the US dollar is considered as the safe-haven currency.
- The Euro (EUR) - Euro is the second most dominating currency in the forex trade market after the US dollar. It has a strong universal acceptance being the single currency of the European monetary union. As the Euro is used by all the members of the European Union, it currently accounts for almost 37% of Forex exchange trade.
- Japanese Yen (JPY) - The yen is the most traded and major currency in the Asian foreign exchange trade market. It is the third most important currency in foreign exchange trade and is regarded as a safe haven for traders in times of crisis.
- The British Pound (GBP) - The pound is the UK'S currency and is heavily traded against the Euro and the US Dollar, but it has fewer exchanges between other foreign currencies.
- The Swiss Franc (CHF) - The swiss franc is Switzerland's currency. It is also regarded as a safe place for investors in times of risk aversion.
- The Canadian Dollar (CAD) - It is a commodity-driven currency because the Canadian economy is export-oriented, the main export being crude oil. The global economic growth and technological progress make the CAD attractive to investorsGDP growth [2], industrial production, interest rates, consumer price index, retail sales, etc.
- Technical analysis of the market is also important. The analysis includes market trends, which are classified into three segments.
- Uptrends, downtrends, flat trends.
- Traders also add to the mix, sentimental analysis, which is based on their own opinions, experience and gut feelings about a certain currency.
- A trader has to know their limits, how much risk they can afford, trade by trade and how Risk management [3] is a big factor in any field of investment. You need to set realistic profit and loss limits every time you trade. If you are new to trading, be cautious and be consistent in the manner in which you trade, so your losses when they come, will not be too damaging to your overall capital.
- Research the market as much as you can, because it will increase your vision of the markets. Good quality research and analytics is the key to profit in forex trading.
Conclusion
Foreign Exchange is a very diversified market. There are a lot more opportunities than you can imagine. Once you come up with a system of analysis, investment plan and a strategy for risk management, you will be able to make it your full-time career. You need to be consistent, learn as much as you can about the factors that affect the value of each currency and trade accordingly.