Major Currencies in Forex

The foreign exchange market is the world's largest financial market with over $2 trillion in daily trading volume. Despite its sheer size, only a few currencies make up most of its transactions. Almost 85% of transactions in the forex market involve seven major currencies. These currencies are the US Dollar, the Euro, the Japanese Yen, the Swiss Franc, the Canadian Dollar, the British Pound and the Australian Dollar.

To get the most out of your forex trading and maximize profits, you must trade using these major currencies. These currencies are known for their liquidity. The countries of these currencies have low inflation rates, respectable central banks and politically-stable governments. These major currencies are less volatile and risky than the minor currencies.

As a forex trader, you must understand the concepts of "long" and "short" positions. A long position is taken when a forex trader buys a certain currency to sell it later at a higher price. A short position, on the other hand, is taken when a trader sells a currency expecting a decrease in the exchange rate.

Currencies are traded in pairs, or what is termed as a currency pair. The US Dollar and the Euro (USD-EUR) is one of the most popular currency pairs in forex. A trader buys one currency in exchange for another currency, then sells this currency later on when there is a favorable change in the exchange rate. In technical terms, a trader goes long in one currency and short in another.

The major currency pairs are preferred by most traders because of political and economic factors. Economic determinants such as inflation and interest rates can affect the value of a currency. So does political developments such as elections and coups. Those countries with favorable and stable economic and political conditions have currencies preferred by most traders.

Aside from political and economic factors, there are also other conditions that may affect currency rates, such as extremely large orders. Some other factors are circumstantial in nature and are unknown to most traders. The scope of the forex market makes it virtually impossible for any trader to substantially influence the forex market rates. Fluctuations in the exchange rates are the results of a combination of many factors.

Forex analysis can either be technical or fundamental. Traders who rely on technical analysis use support and resistance levels, trend lines, mathematical analysis and other data to identify and predict future trends. Those who follow fundamental analysis rely on economic figures to come up with price expectations.

It is best to trade in major currency pairs to lessen the impact of unfavorable economic and political events that may spoil an otherwise profitable trade.

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