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What is traded in forex?

What is traded in forex?


The event risk this week is really centred on Fed chair Jay Powell’s speech at the Jackson Hole forum (Sat 00:00AEST), with other global data points unlikely to promote as great a reaction – Powell should keep the option of a 75bp hike at the 21 Sept FOMC

Before we get down to what is traded in forex, let’s hit the basics first to understand what is “trading.” Trading is the process of buying and selling assets with the intention of making a profit.

Now, when it comes to Forex, it is a financial market in which traders buy and sell currencies with the hope of making a profit.

 Referring to the above definitions, “money” is the main component traded in forex. It primarily focuses on the exchange of currencies with the intention of making a profit.

Trading in general is observed as the buying and selling of a tangible asset, and trading of currencies uses the same fundamentals, but determining how forex trading works can be confusing, so we’ll use a simple example to explain.

 Imagine that buying currency is like investing in the shares of a company. In a company, the shares generate a value that is the result of the health and operations of the business. When it comes to currency, the price and value are usually a direct reflection of the market’s opinion on the current and future health of the economy of a country.

For example, in forex when you buy the Japanese yen, you are basically buying a “share” in the country’s economy. You are having a bet that the Japanese economy is doing well, and exponentially grow as time goes by. If the yen is valued higher than the currency of another country at the time of exchange, you will hopefully end up with a profit.

In general, the value of the exchange rate of a currencyversus other currencies is a reflection on the conditions of that country’s economy, compared to other economies.

How many major currencies are there?

There are several potential currencies that you can trade, but as a new forex trader, it is advisable to perhaps start trading with the major currenciesThe reason they are termed “major currencies” is due to their significant position in the global economy. In other words, they are the most heavily traded currencies and represent the world’s largest economies.

What is traded in forex?

What different forex traders define as “major currencies” varies.

Only the USD, EUR, JPY, GBP, and CHF are seen as big currencies by the global markets, who likely received straight A’s and adhered to all the rules..

Following that, they classify AUD, NZD, and CAD as “commodity currencies.”

For us rebels, and in the interest of simplicity, we just refer to all eight currencies as the “majors.”

We have included them below along with their names, countries of use, and funny nicknames.

USDUnited StatesDollarGreenback or Buck
EUREuropean UnionEuroFiber
GBPGreat BritainBritish PoundSterling
NZDNew ZealandDollarKiwi

The first two letters of a currency sign always stand for the name of the country, and the third letter, which is typically the initial letter of the currency’s name, stands for the name of the currency.

The ISO 4217 currency codes are identified by these three letters.

Because they are the most frequently traded, the currencies listed in the aforementioned chart are referred to as “majors.”

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