What is traded in forex?

Currencies/Money is traded in Forex Market. These are currencies of different countries across the globe. 

Will i find goods to buy or sell for exchange of money or pay for a service in the forex market? NO. There is only currencies/ money in the market.

So it is the money you trade in forex to earn a profit.

In the forex market, no physical contact between the buyer and the sell. If you still wonder how to trade, it means you skipped the first lesson, but i will still remind you. You can only trade forex over the counter through a broker.

Currencies Traded in Forex Market.

Currencies of the major economies from the global world are commonly traded in forex market.

They are quoted and traded in pairs so as to compare exchange rates.

We shall look at different currencies on the forex market. namely; major currencies, minor or cross currencies and exotic currencies.

let’s take a quick look on these currency groups so that you can familiar yourself with on the market to trade.

The Major Currency pairs 

If it’s your first time to trade, major currencies are the best option to start with.

Major currency pairs are the most  traded on the market. They take up about 80% of trade volume on the forex market. They  represent large economies on the world market therefore are less susceptible to manipulation.

In addition, the major currency pairs have low volatility and high liquidity.  They also have smaller spreads compared to other pairs.

Not forgetting, all major currency pairs are quoted/paired with the US Dollar.

They include; USD/JPY, USD/CAD, USD/CHF, GBP/USD, AUD/USD,NZD/USD, EUR/USD.

Minor Currency Pairs.

Minor/Cross currency pairs are pairs that do not include the USD

These pairs are next to the major currencies.  if you cant find majors to trade, these are are also good to add on your list.

(e.g. EUR/GBP, EUR/JPY, GBP/JPY AUD/JPY,NZD/JPY, CAD/JPY, EUR/CAD,EUR/NZD,EUR/AUD,EUR/CH,F AUD/CAD,AUD/CHF, EUR/AUD).

They are less liquid and more volatile than Major currency pairs. Expect to see very strong price movements in the market especially in times of fundamental news release.

Exotic Currency Pairs

 Exotic currency pairs are currencies from emerging or smaller economies, paired with a Major and minors.

when compared to Crosses and Majors, Exotic currency pairs are much riskier to trade. Because;

They are less liquid, more volatile, and are well known for very large spreads. Some of the pairs on the market are;

EUR/SGD, EUR/TRY,CHF/SGD, USD/CNH,USD/HKD,USD/HUF,USD/ZAR.

if you take a good look at the above mentioned pairs, you will realise that each currency has three letters and you wonder why!

Currency Symbols and Pairs.

All countries’ currencies are represented as symbols on the forex market in pairs. The symbols always have three letters. The first two letters represent the name of the country and the last letter stands for the name of that country’s currency.

Forexample, USD;

US stands for United States as a country and D, dollar, which is the United States currency name. I think it now makes sense to you. This applies for all the symbols used on the pairs as shown below

 How Currency Pairs are traded in forex.

A currency pair contains two currencies. The first currency is the base currency and the second currency is the quote/counter currency.

Since trading forex involves the buying of one currency and simultaneous selling of another, when you buy a base currency, you sell its respective counter currency. When you sell the base currency, you buy its counter currency

For instance, when you buy USD/JPY, you are simply buying USD which is the base currency in this case, and selling JPY, the quote / counter currency.

Traders profit from buying and selling currencies by actively speculating on the direction currencies are likely to take in the future.

The fact that forex trading does not involve exchange of physical things, it may appear confusing. Right? To get to understand this, you just have to think of buying currency as buying a stock in a company or a share in another country.

The price of currency is usually a direct reflect of the market’s opinion on the current and future status of its respective economy.

Every time you place a buy of a certain country’s currency, you are speculating that its economy is doing well. But when you sell back, hopefully you expect a profit, or you expect a future fall in its economy. Every time you take a trade, you incur a cost known as an exchange rate.

An exchange rate is the price paid for one currency in exchange for another. It is this type of exchange that drives the forex market.

Like countries, every currency has its own personality and identity.