The field of currency trading differs considerably from trading of other financial instruments and commodities. Forex trading is considerably different from stock, bonds and futures trading. Knowing the basics of the marketplace is extremely important for any trader to profit from the market.
The largest Financial Market: The daily trading amount of the currencies market exceeds 4 trillion US dollars and by far it's the largest financial market exists within the known universe. The major players of the market are banks including central banks. They carry out most of the big transactions from the market. The retail traders contribute a small sector of the market, but the contribution is increasing swiftly over the years due to the ever increasing popularity of forex trading.
Round the Clock Exchanging Sessions: The world currency trading market is open 24 hours a day from Sunday evening to Friday evening GMT. However the transaction volume in intraday trades show great variations as there are three major trading sessions as Asian session, European session and United states or US session. It comes with an overlapping of Asian and European sessions as well as European and US sessions where the trading volumes can be very high. And, there's a considerable gap between US session close and the start of Asian session in which the trading volumes can be quite low. The currencies of countries from the particular region are most traded when the regional session is open.
Over-The-Counter Trading and Currency Pairs: Currencies are traded in pairs. It's possible to purchase a currency by selling another. The price relation between your two currencies is the exchange rate or even the price of the happy couple and it is priced up to the fourth decimal point. The tiniest price change easy to some is known as pip and it generally equals 1/100 of 1% of the exchange rate. The trades are executed over-the-counter meaning directly between the buyer and seller; and there are no centralized exchanges or regulatory bodies for forex currency trading.
The Three Kinds of Lots and their effects on the stock market: Forex trades are carried out in lots. Now there are three kinds of lots available to retail traders as standard lot, mini lot and micro lot. A typical lot is the position size that equals $100000, a mini lot equals $10000 along with a micro lot equals $1000. When trading with standard lots, a pip difference in price may cause $10 profit or loss. Similarly with mini lots exactly the same can cause $1 change with micro lots a ten cent ($0.10) change. Also it ought to be noted the availability of the types of lots varies with broker as most brokers only offer standard and mini accounts.
The Most Popular Currencies: However, there are hundreds of currency pairs readily available for trading, a majority of volume is contributed by only 18 currency pairs comprised of eight most popular currencies. These currencies include USD (US Dollar), EUR (Euro), GBP (British Pound), JPY (Japanese Yen), CHF (Swiss Franc), CAD (Canadian Dollar), NZD (New Zealand Dollar) and AUD (Australian Dollar). Retails traders also prefer these currencies as they are most liquid.