Trading characteristics
The Forex trades have no regulation by any unified body. As the currency markets deals without any intermediaries there exist several related markets dealing with several currency instruments. In other words, there is no unified US dollar rate but there are several USD rates that differ according to the bank or retail broker trading it. The differences in the rates are not big as the arbitrageurs can use them. There is a body that pretends to be a clearing mechanism of the forex – a joint venture – FxMarket Space (the Chicago Mercantile Exchange and Reuters).
Moreover there are several major trading centers located in such cities like London, New York, Tokyo, Hong Kong and Singapore and the banks in the whole world. The trades at forex go without pauses. It starts with an Asian trading session, then goes European one and the North American, then this cycle repeats. The only exception in this is the weekends.
There is usually no some particular information at the Forex. The changes of the exchange rates occur due to current currency flows. The outlook for the changes in monetary flows is a subject to such factors as GDP, inflation, interest rates, budget and several other economic indices. The most important news is issued on defined data and time just with an aim to open this or that information to all market members at the same time. The only exception is the banks, as they can know the data about their customers’ order flow.
The currencies here are the individual product that is traded against another product of the same type. Commonly the currencies marked as XXX/YYY where YYY is the ISO 4217 international three-letter code of the currency that expresses the cost of the one unit of XXX that is called the base currency. Let’s consider the example: EUR/USD means the price expressed in the USD that is paid for the one Euro. Moreover initially it is implied that the first currency in the pair was considered to be stronger than another one at the moment of the pair creation and vice versa the second currency called the counter currency was considered to be lower at the moment of the pair creation.
In case something can contribute to XXX change it can also change the whole XXX/YYY pair as well and moreover the XXX/ZZZ pair too. Such situation is called the positive currency correlation between XXX/YYY and XXX/ZZZ.
According to the research the most traded currencies are:
- EUR/USD: 28 %
- USD/JPY: 18 %
- GBP/USD: 14 %
The first place goes to the USD as it is used in 88.7% of all transactions at the spot market, the second place is for Euro (37.2%), the third place – Japanese Yen (20.3%), and the fourth place – the Sterling (16.9%). The whole volume percentages should be 200% in sum: where 100% for the all sellers and 1000% for the all buyers.
Despite the growth of the volume of Euro trades the Forex is still USD oriented. For example when Euro is traded against some non-European currency (ZZZ) it includes two trading processes: EUR/USD and USD/ZZZ. The only exception is the Euro trades against the Japanese Yen, as EUR/JPY is an already traded currency pair.
