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What Currency Pairs Can be Traded on the Forex Market?

By Charles Hopkins Published 10/14/2006 | Finance

Most investors and traders like to put their money on the Forex trading business. This is due to the fact that they make large profits in a short period of time. Online trading companies made the job easier than ever. But do not be so excited. Forex trading is easy and fun to those who know the tricks of the trade already. Beginners must learn the trade first. It may sound confusing and difficult at the start. But when you learn the trade gradually, it is a fun and enjoyable way of earning.

Never initiate a Forex trading business without proper knowledge because that may spell disaster. Know all the basics and have more practice before embarking on the real trading.

The Forex market is a very liquid market where the dollar volume of currencies has been recorded to exceed 1.4 trillion per day. This made Forex trading the largest and most liquid market in the world. And likewise, it is also the most profitable.

Currencies from countries with stable governments, respected central banks and low inflation rate are the most traded currencies. This includes the US Dollar, Canadian Dollar, British Pound, Japanese Yen, Australian Dollar and Swiss Franc. Changes in currency prices are due to the economic and political conditions of the country. The more stable the economy and politics of the country, the more stable the currency become.

Dealings in the Forex market always involve pair of currencies. This means that one currency is being compared to the pair currency. Like for instance, Australian Dollar is often paired with US Dollar, Euro against US Dollar and so on. It is also important to remember that they are priced as pair. The US Dollar is the most paired currency in the market.

Forex trading means simultaneous purchase of one currency and sale of another. The trade is executed at the time when the traders expect that the currency they are buying will increase in value compared to the one that they are selling. If it does increase in value, the trader must sell the other currency back in order to lock in a profit. It is a buy and sell process. If the trader bought or sold a pair, he must sell or buy another of the same amount to complete the process. If the process is not completed, it is called an open trade.

In the Forex market, remember that currencies are traded in pairs. In the expression USD (US Dollar) / CAD (Canadian Dollar), it is denoted as the left and right pair. The left currency is called the base currency and the one on the right is called the counter currency.

It is important to understand the pairing of currencies. This is where the profit or loss is determined. In the buying process, the trader is actually buying the base currency and on the same manner selling the counter currency. In the selling process, the trader is selling the base currency and buying the base currency.