To accurately capture the information requested in this question for the foreign exchange market is difficult.
This is due in part because foreign exchange is mainly traded on an over the counter basis rather than on a centralised exchange and as such, much of this information remains proprietary in nature. Also complicating this question is that foreign exchange operations have different client bases. An operator based in Europe will have a different client base than an operator in Australia and the geographic location of these clients will impact of what currency pairs they prefer to trade.
To gain an appreciation of the most typical currency pairs traded globally, we have sourced the Bank for International Settlements 2004 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity. (While the seventh triennial foreign exchange survey data was collected in April and June of this year, the results are not yet available for publication). The 2004 Survey identified the EUR/USD as by far the most traded currency pair in April 2004, capturing 28% of global turnover, followed by USD/JPY with 17%. Next was GBP/USD at 14%, AUD/USD at 5%, USD/CAD and USD/CHF (Swiss Franc) at 4% each and EUR/JPY at 3%. While the survey does not specifically identify some of the other currency pairs it would be safe to say that trading in AUD, NZD, GBP and CAD against the JPY and CHF have been popular trades in more recent times as traders have participated in high yielding carry trades.
The amount of leverage offered varies widely and is dependent upon the operator’s target market and their risk control practices. Margins are, as low 0.5% of the face value of the transaction but would typically average between 1 to 3 % of the face value of the transaction. For example a US$ 1,000 would act as a 1% initial margin on a position of US$ 100,000.
The holding period of a trade is dependent on a range of factors, including whether you are a day trader or a medium term investor. A day trader may open and close a number of trades each day, while a medium investor would be looking at a time frame of weeks or perhaps longer. Your level of capitalisation is also an issue as undercapitalised traders tend to be forced out of their positions more quickly than a well capitalised trader. Market conditions routinely play a role in the holding period as increased volatility may limit the length of time you stay committed to a trade even though you have sufficient funds available.
A plethora of literature has been produced chronicling characteristics of a successful trader, including forex. A simple internet search of top trading books resulted in 74.5 million entries! Three books often mentioned are Van K. Tharp’s Trade Your Way To Financial Freedom, Alexander Elders’ Trading For A Living and Jack Schwager’s Market Wizards.
It is said that you need to find a trading style that suits your personality. It will be counterproductive to be a longer term forex trader if your personality will not let you cope with the market gyrations that occur over the course of the trade.
The discipline of record keeping is also seen as an important characteristic for a forex trader. Maintaining and reviewing a trading diary can be a vital educational tool as you analyse both your winning and losing trades.
Above all remember, forex trading is not easy and requires a disciplined approach and realistic outlook. As the old trading saying goes,”sometimes you are the windscreen while at other times you’re the bug”.