The short answer? Money—specifically, currencies. Forex trading is all about buying one currency while selling another at the same time. This allows traders to speculate on the relative value of currencies and make profits from their movements.
Since Forex trading doesn’t involve physical goods, it can feel a bit abstract. Think of it this way: when you buy a currency, it’s like buying a “share” in that country’s economy. Essentially, you’re betting on that country’s current and future economic health compared to others.
Let’s break it down further to make it easier to understand.
Currency Trading Explained
In Forex trading, exchange rates show how much one currency is worth in comparison to another.
Here’s an example:
- If you buy the Japanese Yen (JPY), you’re essentially betting on Japan’s economy to perform better than the country whose currency you’re selling (e.g., the US Dollar).
- If the exchange rate shifts in your favor, you can sell the currency back at a higher rate and pocket the profit.
Example:
- You buy Japanese Yen (JPY) when 1 USD = 100 JPY.
- Later, the exchange rate changes to 1 USD = 95 JPY.
- You sell the JPY for USD at the new rate, making a profit because your Yen has gained value against the Dollar.
The Major Currencies in Forex
There are over 180 currencies around the world, but Forex traders focus on just a handful called “the majors.”
What Are Major Currencies?
Major currencies are the most traded in the Forex market, representing the world’s largest and most stable economies. These currencies are heavily used in international trade, finance, and investment.
Here’s a list of the major currencies, along with their symbols and popular nicknames:
| Code | Country | Currency | Nickname |
|---|---|---|---|
| USD | United States | Dollar | Buck, Greenback |
| EUR | Eurozone | Euro | Fiber |
| JPY | Japan | Yen | Yen |
| GBP | Great Britain | Pound | Cable |
| CHF | Switzerland | Franc | Swissy |
| CAD | Canada | Dollar | Loonie |
| AUD | Australia | Dollar | Aussie |
| NZD | New Zealand | Dollar | Kiwi |
Why Are They Called “Majors”?
- They make up the bulk of Forex market transactions.
- These currencies are tied to stable economies, making them more predictable and highly liquid.
- Their tight spreads and frequent price movements create plenty of trading opportunities.
Understanding Currency Codes
Currency codes are standardized by the ISO 4217 system. Each code has three letters:
- The first two letters represent the country.
- The third letter represents the currency.
Examples:
- NZD: New Zealand Dollar
- GBP: Great Britain Pound
Fun Facts About Currencies
Here are some interesting tidbits about the world’s currencies:
- The British Pound (GBP) is the oldest currency still in use today, dating back to the 8th century.
- The Zimbabwe Gold (ZiG), introduced in 2024, is the newest currency, replacing the Zimbabwean dollar.
- The US Dollar (USD) has a long list of nicknames, including:
- Greenback, Benjamins, Cheddar, Bread, Loot, and Dead Presidents.
- In Peru, it’s even nicknamed “Coco,” a reference to George Washington’s face on the $1 bill (since “Jorge” is Spanish for George).
Why Currencies Are Traded
Currencies are traded for more than just practical reasons like international travel or trade. In fact, most Forex trading is driven by speculation.
- Speculators: These traders aim to profit by buying currencies they expect to increase in value and selling them at a higher price.
- Hedgers: Businesses and financial institutions use Forex to protect themselves from unfavorable exchange rate changes (for example, when importing or exporting goods).
Summing It Up: What’s Traded in Forex?
In Forex, money itself is the commodity. When traders buy and sell currencies, they’re essentially trading on the strength and potential future performance of entire economies.
So the next time you hear someone talk about trading currencies, remember—it’s not just about money. It’s about betting on the economic health of nations around the world.
Ready to jump into this exciting market? Start with the major currencies, keep an eye on global events, and always stay curious—there’s always something new to learn!
