So-called exotic currencies have long offered enormous profit potential as well as very substantial risks. The most noticeable approach has been to single out weak, but fixed currencies for brutal speculative attacks, leading to large devaluations and extensive economic problems for the countries involved. The reason that many emerging currencies are artificially supported to the US dollar or other currencies is normally to force local monetary authorities to act with more discipline and to persuade holders of the currency against the risk of depreciation. Unfortunately, it has proven nearly impossible for most emerging countries to maintain the necessary discipline to justify stable currency levels and the result is nearly always a dramatic devaluation. In leveraged trading, such devaluations offer big profit potential, but in the intermediate periods where the currency is stable, high interest rates will benefit investors with the nerve to hold onto the currency.
This makes the emerging markets very tricky to Forex market trading and while nobody should Forex market trading any foreign exchange market without a solid grasp of the technical aspects, this is even truer in emerging markets. Seen from a commercial company's point of view, however, failure to protect against the risks in such markets can be fatal. Mainly, interest focuses on South East Asia and South America, but there is no reason that both the African Continent and Eastern Europe should not provide interesting markets in the future.
And some words about of how currencies are traded in the Forex market.
In the Forex, currencies are traded in dollar amounts called Lots. One lot is equal to $1,000, which can control $100,000 in currency. This is known as the "margin". Yes with $1000 only you can control $100,000 worth of currency.
Currencies are always traded in pairs in the Forex market. Each pairs has its own unique notation that expresses what currencies are being traded. The notation for a currency pair will always be in this sort of format:
ABC/XYZ
Now ABC/XYZ is not a real currency pair, its just an example of the notation used to identify a currency pair. In this example of ABC/XYZ, ABC would be the symbol for one countries currency and XYZ would be the symbol for another countries currency.
Here are some of the creal and common symbols used in the Forex market:
- USD - The US Dollar
- EUR - The currency of the European Union "EURO"
- GBP - The British Pound
- JPN - The Japanese Yen
- CHF - The Swiss Franc
- AUD - The Australian Dollar
- CAD - The Canadian Dollar
- NZD - The New Zealand Dollar
The most commonly traded currencies are referred to as the 'Majors':
- US Dollar (USD)
- Japanese Yen (JPY)
- Euro (EUR)
- British Pound (GBP)
- Canadian Dollar (CAD)
- Australian Dollar (AUD)
- Swiss Franc (CHF)
Most commonly traded currency pairs are:
- EUR/USD which stands for Euro / US Dollar
- USD/JPY which stand for US Dollar / Japanese Yen
- GBP/USD which stands for British Pound / US Dollar
- USD/CAD which stands for US Dollar / Canadian Dollar
- AUD/USD which stands for Australian Dollar/US Dollar
- USD/CHF which stands for US Dollar / Swiss Franc
- EUR/JPY which stands for Euro / Japanese Yen
These are the symbols you will most commonly see in a Forex market platform. Of course there are many other symbols for other currencies as well, but these are the most commonly traded ones.
A currency can never be traded by itself. So for example you can never trade a JPY by itself. You always need to compare one currency with another currency to make a trade possible. This is the heart of the Forex market.
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