Understanding Currencies in Forex Trading
What many new Forex traders don’t realize is that no money is ever actually being traded on the market. Instead, the market is complete speculation with the changes in values, profits and losses only existing as computer entries.
While these computer entries may not really represent any actual exchanges, the figures still have a major impact on the global economy.
The foreign exchange market exists to regulate the exchanging of the major world currencies by sectors (mostly banks) which rely on foreign currency exchange. Other than banks, global companies who make payments in foreign currencies also heavily rely on Forex.
The Forex trading market is dominated by the US dollar. More than 8 out of every 10 Forex trades occur with the US dollar, most of which are paired with the Euro. EUR/USD trades account for nearly 30% of all the Forex trading on the market. After this, USD/JPY and GBP/USD are the next most popular trades in the foreign currency exchange market.
These 3 currency pairs are more stable than the currencies of smaller countries or certain regions. Some currency pairs are associated with a specific commodity. For example, AUD/USD is linked to the gold commodity and USD/CAD is linked to the oil commodity.
The major currencies in Forex trading are:
- Australian dollars (AUD), nicknamed “Aussie”
- Canadian dollars (CAD), nicknamed “Loonie”
- Euros (EUR), nicknamed “Fiber”
- Japanese Yen (JPY), nicknamed “Yen”
- British pounds (GBP), nicknamed “Cable”
- Swiss Francs (CHF), nicknamed “Swissy”
- United States Dollars (USD), nicknamed “Buck”
Forex currencies are listed according to the ISO 4217, or the Codes for the Representation of Currencies and Funds. Under the ISO 4217 standards, the first 2 letters represent the country and the last letter represents the name of the currency. In cases where the currency is independent of the nation, the country is listed as X. For example, the code for Central Caribbean dollars is XCD. “X” can also be used for special situations, like the exchange rate for gold commodities.
Understanding Currencies in Forex trading you can trade Forex in any currency you wish. However, it is a good idea to start Forex trading with the major 7 currencies listed above as they are most stable.
But, you will also want to make sure that you choose currency pairs which you can easily follow. If you primarily keep track of the US and European markets, then you should not trade in Canadian dollars (though you will need to follow all global markets to be truly successful in Forex trading).
If you live in a country like Hungary, for example, then it may make sense to trade in your local currency as you have more insight to market trends, even if the Hungarian forint is more volatile than the other Forex currencies.