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by Ahmad Hassam

Currency trading is the name of the game right now. Currency trading is being called the Recession Proof Business of the 21st Century. The currency market is the crossroads for international capital, the intersection through which the global commercial and investment flows have to move. We like to think of the currency market as the, Big Kahuna of the financial markets. Currency Market is the most traded financial markets in the world.

Currency market is open around the clock six days a week, enabling currency traders to act on news and events as they happen. More than anything else, the currency market is the traders market. Its a market where a billion dollar of trades can be executed in a matter of seconds. Huge currency transactions may not even move the prices noticeably.

By far the vast majority of currency trading volume is based on speculation. While commercial and financial transactions in the currency markets represent huge nominal sums, they still pale in comparison to the amount spend on speculation.

The depth and breadth of the speculative market means that the liquidity of the overall currency market is unparalleled among global financial markets. Estimates are that upwards of 90% of the daily trading volume is derived from speculation. It means that commercial or investment based currency trades account for less than 10% of the daily global volume.

Currency trading has its own set of trading lingo just like any financial market. If you are new to currency trading, the mechanics and terminology may take some getting used to. The biggest mental hurdle facing newcomers to currency trading especially those traders coming from other markets are getting there head around the idea that each currency trade consists of a simultaneous sale and purchase.

For example, in the stock market, if you purchase 100 shares of Google (GOOG), you own only 100 shares and want to see the price go up. When you want to exit, you simply sell your 100 shares. But in currencies, the purchase of one currency involves the simultaneous sale of another currency.

This is the exchange in the foreign exchange. Currency markets refer to trading currencies by pairs to make matters easier. So currencies come in pairs. The major currency pairs all involve the US Dollar on one side of the deal. All most all currency pairs have nicknames or abbreviations.

The most frequently traded currency pairs are: EUR/USD, USD/CAD, UAD/USD, USD/JPY, GBP/USD, USD/CHF and NZD/USD. The designation of each currency is expressed using ISO codes for each currency.

A cross currency pair or a cross is any currency pair that does not include the US Dollar. Cross pairs serve as the alternative to always trading the US Dollar. Although the vast majority of currency trading takes place in the dollar pairs but still there are some important crosses that get traded frequently. Cross rates are derived from the respective USD pairs but are quoted independently.

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