What is Forex Trading?

5 Minutes
Updated Jul 26, 2023 09:27
Source: DepositPhotos

What is Forex Trading and what is traded in Forex?

The answer is actually quite straightforward- money, specifically currencies. Forex trading may sound abstract since we do not actually buy and hold any physical currency.

Think of buying a currency as buying a share in a particular country, similar to buying shares in a company.

The price of the currency is usually a direct reflection of the market’s opinion on the current and future health of its respective economy. In forex trading, when you buy USD, you are basically buying a “share” or stake in the US economy.

You are betting that the US economy is doing well, and will become even better in time.

Once it does well, you sell the “shares” back to the market, and make a profit on the transaction.

In conclusion, the exchange rate between two currencies is the reflection of the performance of that country’s economy, compared to the other.

What are the Major currencies?

All currencies are assigned a three-letter code known as ISO 4217 Currency Codes.

an image showing the explanation of ISO4217 currency codes

For instance USD, US is the country while D stands for dollar.

While there are amore than 170 currencies internationally, the US dollar is involved in a vast majority of forex trading, so it’s especially helpful to know its code: USD. It is also referred as a major currency.

Other major currencies include; European euro (EUR), Japanese yen (JPY), the British pound (GBP), the Australian dollar (AUD), the Canadian dollar (CAD), the Swiss franc (CHF) and the New Zealand dollar (NZD).

* The content presented above, whether from a third party or not, is considered as general advice only.  This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.