WHAT IS TRADED?
What is Traded?
The simple answer is MONEY.
Because you're not buying anything physical, this kind of trading can be confusing.
Think of buying a currency as buying a share in a particular country, kinda like buying stocks of a company.
The price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy.
When you buy, say, the Japanese yen, you are basically buying a "share" in the Japanese economy.
You are betting that the Japanese economy is doing well, and will even get better as time goes.
Once you sell those "shares" back to the market, hopefully, you will end up with a profit.
In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's economy, compared to other countries' economies.
By the time you graduate from this School of Market slayers, you'll be eager to start working with currencies.
Currency symbols always have three letters, where the first two letters identify the name of the country and the third letter identifies the name of that country's currency.
Take NZD for instance. NZ stands for New Zealand, while D stands for dollar. Easy enough,right?
The currencies included in the chart above are called the "majors" because they are the most widely traded ones.
We'd also like to let you know that "buck" isn't the only nickname for USD.
There's also: greenbacks, bones, benjis, benjamins, cheddar, paper, loot, scrilla, cheese, bread,moolah, dead presidents, and cash money.
So, if you wanted to say, "I have to go to work now."
Instead, you could say, "Yo, I gotta bounce! Gotta make them benjis son!"
Or if you wanted to say, "I have lots of money. Let's go to the shopping mall in the evening."
Instead, why not say, ""Yo, I gots mad scrilla! Let's go rock that mall later."
Did you also know that in Peru, a nickname for the U.S. dollar is Coco, which is a pet name for Jorge (George in Spanish), a reference to the portrait of George Washington on the $1 note?
Currencies Are Traded in Pairs
Forex trading is the simultaneous buying of one currency and selling another.
Currencies are traded through a broker or dealer, and are traded in pairs; for example the euro and the U.S. dollar (EUR/USD) or the British pound and the Japanese yen (GBP/JPY).
When you trade in the forex market, you buy or sell in currency pairs.
Imagine each pair constantly in a "tug of war" with each currency on its own side of the rope.
Exchange rates fluctuate based on which currency is stronger at the moment.
Major Currency Pairs
The currency pairs listed below are considered the "majors". These pairs all contain the U.S. dollar (USD) on one side and are the most frequently traded.
The majors are the most liquid and widely traded currency pairs in the world.
Major Cross-Currency Pairs or Minor Currency Pairs
Currency pairs that don't contain the U.S. dollar (USD) are known as cross-currency pairs or simply as the "crosses." Major crosses are also known as "minors."
The most actively traded crosses are derived from the three major non-USD currencies: EUR, JPY, and GBP.
Exotic Pairs
No, exotic pairs are not exotic belly dancers who happen to be twins. Exotic pairs are made up of one major currency paired with the currency of an emerging economy, such as Brazil, Mexico, or Hungary.
The chart below contains a few examples of exotic currency pairs.
Wanna take a shot at guessing what those other currency symbols stand for?
Depending on your forex broker, you may see the following exotic pairs so it's good to know what they are.
Keep in mind that these pairs aren't as heavily traded as the "majors" or "crosses," so the transaction costs associated with trading these pairs are usually bigger.
It isn't unusual to see spreads that are two or three times bigger than that of EUR/USD or USD/JPY.
So if you want to trade exotics pairs, remember to factor this in your decision.
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