Top 6 Most Traded Currencies

History

Top 6 Most Traded Currencies

Rank	Currency	ISO 4217 Code	Symbol
1	United States dollar	USD	$
2	Euro	EUR	€
3	Japanese yen	JPY	¥
4	British pound sterling	GBP	£
5/6	Swiss franc	CHF	-
	Australian dollar	AUD	$

While forex has been traded since the beginning of financial markets, on-line retail trading has only been active since about 1996 . From the 1970s, larger retail traders could trade FX contracts at the Chicago Mercantile Exchange.^[1]

By 1996 on-line retail forex trading became practical. Internet-based market makers would take the opposite side of retail trader’s trades. These companies also created retail forex platform that provided a quick way for individuals to buy and sell on the forex spot market.

In online currency exchange, few or no transactions actually lead to physical delivery to the client; all positions will eventually be closed. The market makers offer high amounts of leverage. While up to 4:1 leverage is available in equities and 20:1 in Futures, it is common to have 100:1 leverage in currencies.]].^[1] In the typical 100:1 scenario, the client absorbs all risks associated with controlling a position worth 100 times his capital.

Currencies are quoted in pairs, for example EUR/USD (euro versus United States dollar). The first currency is the base currency and the second currency is the quote currency. A person who is short the EUR/USD will have a loss if the USD loses value and make a profit if the EUR loses value. A person who is long the EUR/USD will make a profit if the USD loses value and have a loss if the EUR loses value.

Retail forex

In financial markets, the retail forex (retail off-exchange currency trading or retail FX) market is a subset of the larger foreign exchange market. This "market has long been plagued by swindlers preying on the gullible," according to The New York Times^[1]. Whilst there may be a number of fully regulated, reputable international companies that provide a highly transparent and honest service, it's commonly thought that about 90% of all retail FX traders lose money. ^{[2] [3]}

It is now possible to trade cash FX, or forex (short for Foreign Exchange (FX)) or currencies around the clock with hundreds of foreign exchange brokers through trading platforms. The reason that the business is so profitable is because in many cases brokers are taking the opposite side of the trade, and therefore turning client capital directly into broker profit as the average account loses money. Some brokers provide an a matching service, charging a commission instead of taking the opposite site of the trade and "netting the spread", as it is referred to within the forex "industry".

Recently forex brokers have become increasingly regulated. Minimum capital requirements of US$20m now apply in the US, as well as stringent requirements now in Germany and the United Kingdom. Switzlerand now requires forex brokers to become a bank before conducting fx brokerage business from Switzerland.

Algorythmic or machine based formula trading has become increasingly popular in the FX market,with a number of popular packages allowing the customer to program his own studies.

The most traded of the "major" currencies is the pair known as the EUR/USD, due to its size, median volatility and relatively low "spread", referring to the difference between the bid and the ask price. This is usually measured in "pips", normally 1/100 of a full point.

According to the October 2008 issue of e-Forex Magazine, the retail FX market is seeing continued explosive growth despite and perhaps of losses in other markets like global equities in 2008.

Stock selection criteria

Stock selection criteria is a strategy in which an stock analyst or investor uses a systematic form of analysis to determine if a particular stock constitutes a good investment and should be added to their portfolio. The objective of stock selection criteria is to: (1) maximize the total return on investment (appreciation plus any dividends received) for the targeted holding period (2) limit risk (according to an individuals risks tolerance levels) (3) maintain an appropriate degree of portfolio diversification. The stock position can be either "long" (to benefit from a stock price increase) or "short" (to benefit from a decrease in a stocks price), depending on the analyst or investor's expectation of which way the stock is going to move. It is widely acknowledged that a disciplined stock selection approach is one of the primary factors behind the success of well-known investors like Warren Buffett and Peter Lynch. As a result several systematic stock picking approaches have been developed over the years by various stock market experts. In addition, automatic computer programs that query a stock database to select and rank stocks according to specified criteria are also commonly used by investors to aid in their stock selection process.

EVOLUTION OF A TRADER

EVOLUTION OF A TRADER Every Trader goes through the following stages of evolution:1) Basic market reading - is the market going up or down? Note, that at this stage, very few people think of the third possibility.....that the market could be going sideways2) Setting targets for the envisaged move - During this stage the person is happy if the market moves in the envisaged direction and even if the market comes just close to the target but misses it3) Getting to know all the scores and scores of Technical Indicators and tools, thinking that knowing the tools is the secret of successful trading.During this period, the person is focussed on "being right", the mentality is "me against the market", or even, "my forecast is better than yours". The person trades during this period, experiencing both profits and losses, but consistent profits elude her. She is happy every time there is a profit, no matter if it be small and tends to forget about the lossesSlowly, the Trader moves onto the next plane of evolution, wherein:1) She starts to think about various possible scenarios....and starts to think in terms of "If-Then-Else"2) She starts to think in terms of Probability....what are the chances of the IF or the THEN or the ELSE happening3) Starts to think in terms of Risk-RewardHaving mastered this higher plane, the Trader can then move on to the next plane1) Thinking in terms of strategy2) Managing multiple positionsAll of this takes time, TWO years at the minimum. During this period, one should trade as small as one can, alternating one month of Real trades with one month of Paper trades and so on.Learning to trade FX is not the same as learning to ride a bicycle or learning how to swim. Please think about it.If you have any queries, comments, problems or suggestions, please feel free to write/ call at our e-mail and phone numbers below.And, please take a look at our forex trading signals by clicking on "FX Thoughts for the Day"Learn to trade with an Online Trading Simulator featuring live quotes and charts

Fluctuations in exchange rates

A market based exchange rate will change whenever the values of either of the two component currencies change. A currency will tend to become more valuable whenever demand for it is greater than the available supply. It will become less valuable whenever demand is less than available supply (this does not mean people no longer want money, it just means they prefer holding their wealth in some other form, possibly another currency).

Increased demand for a currency is due to either an increased transaction demand for money, or an increased speculative demand for money. The transaction demand for money is highly correlated to the country's level of business activity, gross domestic product (GDP), and employment levels. The more people there are out of work, the less the public as a whole will spend on goods and services. Central banks typically have little difficulty adjusting the available money supply to accommodate changes in the demand for money due to business transactions.

The speculative demand for money is much harder for a central bank to accommodate but they try to do this by adjusting interest rates. An investor may choose to buy a currency if the return (that is the interest rate) is high enough. The higher a country's interest rates, the greater the demand for that currency. It has been argued that currency speculation can undermine real economic growth, in particular since large currency speculators may deliberately create downward pressure on a currency in order to force that central bank to sell their currency to keep it stable (once this happens, the speculator can buy the currency back from the bank at a lower price, close out their position, and thereby take a profit).

In choosing what type of asset to hold, people are also concerned that the asset will retain its value in the future. Most people will not be interested in a currency if they think it will devalue. A currency will tend to lose value, relative to other currencies, if the country's level of inflation is relatively higher, if the country's level of output is expected to decline, or if a country is troubled by political uncertainty.

For example, when Russian President Vladimir Putin dismissed his Government on February 24, 2004, the price of the ruble dropped. When China announced plans for its first manned space mission, synthetic futures on Chinese yuan jumped (since China's currency is officially pegged, synthetic markets have emerged that can behave as if the yuan was floating).

Like the stock exchange, money can be made or lost on the foreign exchange market by investors and speculators buying and selling at the right times. Currencies can be traded at spot and foreign exchange options markets. The spot market represents current exchange rates, whereas options are derivatives of exchange rates.

Stock valuation

Fundamental criteria (fair value)

The most theoretically sound stock valuation method, called income valuation or the discounted cash flow (DCF) method, involves discounting of the profits (dividends, earnings, or cash flows) the stock will bring to the stockholder in the foreseeable future, and a final value on disposition.^[1] The discounted rate normally includes a risk premium which is commonly based on the capital asset pricing model.

Approximate valuation approaches

Average growth approximation: Assuming that two stocks have the same earnings growth, the one with a lower P/E is a better value. The P/E method is perhaps the most commonly used valuation method in the stock brokerage industry.^{[citation needed]} By using comparison firms, a target price/earnings (or P/E) ratio is selected for the company, and then the future earnings of the company are estimated. The valuation's fair price is simply estimated earnings times target P/E. This model is essentially the same model as Gordon's model, if k-g is estimated as the dividend payout ratio (D/E) divided by the target P/E ratio.

Constant growth approximation: The Gordon model or Gordon's growth model^[2] is the best known of a class of discounted dividend models. It assumes that dividends will increase at a constant growth rate (less than the discount rate) forever. The valuation is given by the formula:

.

and the following table defines each symbol:

Symbol	Meaning	Units
	estimated stock price	$ or € or £
	last dividend paid	$ or € or £
	discount rate	%
	the growth rate of the dividends	%

Forex currency

The ratio calculated of one currency with respect to the other currency is termed as foreign currency. For example, let's take the process and perspectives of currency trading occurring at inter bank levels. Say that the bank A inquires regarding the price of the particular currency from Bank B. In response the Bank B will state the quote of the currency and also specify the bank's standing state. If the quote is acceptable to Bank A, then both the banks would enter into an agreement. In the same process, the other details like the purchased amount, amount and the price will also be revealed. Thus, after the terms and conditions are specified, the settlement takes place. The bank A releases the specific amount of rupees which are thereby converted to the respective dollar amount by the Bank B. In this process of forex trading, if the value of rupees increases in the forex trading, the Bank makes the profit.

In forex trading, 2 way quotes are given by the currency traders. The two quotes are basically the rate at which the currency will be purchased and the respective value on which the currency will be sold. These two respective quoted prices are differentiated through the incorporation of hyphen. The price mentioned on the left is the amount on which the forex trader will buy the quotes of the currency and accordingly, the price mentioned on the right side is the price at which the trader has to sell the currency. The spread, basically the bid and ask one specifies the difference between the two quotes which will be applicable for the forex traders. But at the same time, the traders do anticipate a bit of changes in the values of the purchase and the sale rates. Similarly, the trader also sells the purchased currency quote at the determined value, with a slight margin added in the deal. Thus this margin creates the profit or loss for the trader.

The profit which is earned by the forex trader depends on size, position and respective variations in the rates of exchange. Moreover, there are other strict and mandatory rules implemented by the government because of which long time speculations of the forex market can be prevented, thereby reducing the occurrence of the money embezzlement.

The forex currency trading systems are of below mentioned types:

1. Crossbow Swiss system of trading: This trading system encourages the advent of traders into the long on dips and selling the short ones so that the craved profits can be attained in spite of not returning the distinct open profits made. This particular system is meant for grabbing the sudden investment and intermediate swings.
2. The Piranaha system: This system is strictly focused on the current interest rates. Due to this system, the forex traders can predict whether they should invest in short or in long. The main fundamental of this trading is that the entry and the exit should be very smooth.

Definition of margin

Margin is defined as the amount of money required in your account to maintain your market positions using leverage. For example, if you are in an open position for $20,000 using a 100:1 margin, then your account balance should be no less than 1% of that amount. This is simply because you can usually trade up to 100 times the money you actually have. Similarly, if your broker require a 2% margin, you have a 50:1 leverage. The calculation for leverage is:

Leverage = 100 / Margin Percentage

In other words, margin is a courtesy deposit needed to access a leveraging facility in forex. Your deposit is also known as an initial margin or initial deposit.Say, you have $100 in your account and your leverage is 100:1. This means that you can trade up to $100,000 worth of currencies. Your account balance will be 'earmarked' and locked for every transaction that you make leading to the $100,000 mark. So if you hold a $10,000 open position, $100 of you account balance is tied up as a security to your broker. This is known as a maintenance margin. You can now trade the remaining $90,000 leverage inclusive of your $900 balance. Similarly, once you close position, your 'earmarked' money will be free for use again.

When the level of maintenence margin drop below the required level, a margin call will be issued by your broker to bring the level up again. In this event, an investor have two options, that is to top up his account balance or to liquidate his trades to meet the requirement. This usually happens when an investor suffer losses in an open position, resulting in brokerage firm seeking some form of security.

According to authors John Jagerson and S. Wade Hansen of the book 'Profiting With Forex', "Most dealers require you to set aside somewhere around $100 per contract in a mini account or $1,000 per contract in a full-size account. Where many investors get confused is that they believe the $100 or the $1000 they have set aside is the maximum amount they can lose in the trade. This couldn't be farther from the truth."

Taking from the previous example, the maximum amount you can lose if you enter a contract of $10,000 with a margin of 100:1 is not the actual locked amount of $100 in your account, but the entire $10,000 traded. Hence, just like an investor is able to enjoy 100 times of profit, one also stand to lose 100 times one's money. Because of this, margin should be used wisely and moderately along with safety precaution such as using a stop-loss order.