Lesson 2 – Trading For Beginners | What is Traded in Forex?

In lesson 1 (What is Forex) we defined Forex as a global market for buying & selling currencies. And because you will probably be trading currency pairs more than you will be trading other assets, I’ll take this lesson to enlighten you about currencies and why it is very important to know them.

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But first,

What is a currency?

Currency is the medium of exchange for both products and services. Simply put, currency is money.

However, you will not be buying physical products in Forex – which might be a bit confusing but I promise to make it simple.

In Forex, everything is done online. You buy one currency online, sell another over the internet and even make profits online.

When you buy these currencies try to think of it like buying shares in the US or buying stock in Safaricom Kenya (or a company of your choice.

When you buy the USD online, think of it as basically buying shares in the US economy.

In other words, you are forecasting that the US economy is doing well and might continue to do well in the future.

If that turns out to be true and you sell back the currencies you bought then you will make profits.

Your profits will reflect on your trading account and you can withdraw your money at any time – to your local bank account.

Sounds easy, right?  Yes, it is easy.

Since you now understand that everything in Forex is about money, hold patience at heart and try to take in as much as possible from this lesson. Also note that Forex platforms use symbols of currencies – the most traded being the ones listed on the table below.

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CURRENCY	COUNTRY	SYMBOL	NICKNAME
US dollar	United States of America	USD	buck
Euro	In 17 eurozone countries	EUR	fibre
Pound sterling	Great Britain	GBP	cable
Japanese yen	Japan	JPY	yen
Swiss franc	Switzerland	CHF	swissy
Canadian dollar	Canada	CAD	loonie
Australian dollar	Australia	AUD	aussie
New Zealand dollar	New Zealand	NZD	kiwi

How do Currency Pairs Work?

[click_to_tweet tweet=”Forex trading involves buying of one currency and selling for another. Together, the bought and the sold currency form a pair.” quote=”Forex trading involves buying of one currency and selling for another. Together, the bought and the sold currency form a pair.” theme=”style6″]

Example, when you choose to trade a pair that has the US dollar – Yen also USD/JPY, you are predicting that the USD will rise higher than the JYP in value. In this case you will buy the USD and sell the JPY.

If the USD rises against the yen then it means your prediction is right – so you will make some profits. The opposite of this statement is true.

If you still don’t understand then try relating trading currencies to buying real products. In this example lets use a potato to stand in place of the USD and the yen as the currency for purchase.

In order to buy the potato (USD) you’ll need to give away your cash (yen). The value you get in the potato is your profit.

If the potatoes are are less tasty (below your expectations); that’s your loss.

Currency pairs are further categorized into 3 groups: –

Major Currency Pairs.

This group of currencies are called majors because they are the most traded worldwide.

PAIR	COUNTRY OF ORIGIN	MEANING
EUR/USD	Eurozone/USA	Euro – US dollar
USD/JPY	USA/Japan	US dollar – Yen
GBP/USD	United Kingdom/USA	Pound sterling – US dollar
USD/CHF	USA/Switzerland	US dollar – Swiss franc
USD/CAD	USA/Canada	US dollar – Canadian dollar
AUD/USD	Australia/USA	Australian dollar – US dollar
NZD/USD	New Zealand/USA	New Zealand dollar – US dollar

Minor Currency Pairs.

Minors are currency pairs which do not contain the USD. It is worth noting though that the most traded ones are the ones which pair with EUR, JPY, and GBP.

EURO MINORS	YEN MINORS	POUND MINORS	OTHER MINORS
EUR/CHF	EUR/JPY	GBP/CHF	AUD/CHF
EUR/GBP	GBP/JPY	GBP/AUD	AUD/CAD
EUR/CAD	CHF/JPY	GBP/CAD	AUD/NZD
EUR/AUD	CAD/JPY	GBP/NZD	CAD/CHF
EUR/NZD	AUD/JPY		NZD/CHF
	NZD/JPY		NZD/CAD

Exotics.

These are currencies that are’t as much traded but are highly liquid. They contain one major currency as the base currency paired with a non-major currency – often the South African rand, Mexican peso, or Danish krone.

Here are some examples of exotic pairs.

PAIR	COUNTRY OF ORIGIN	MEANING
USD/HKD	USA/Hong Kong	US dollar – Hong Kong dollar
USD/SGD	USA/Singapore	US dollar – Singapore dollar
USD/ZAR	USA/South Africa	US dollar – South African rand
USD/THB	USA/Thailand	US dollar – Thai baht
USD/HUF	USA/Hungary	US dollar – Hungarian forint
USD/MXN	USA/Mexico	US dollar – Mexican peso
USD/DKK	USA/Denmark	US dollar – Danish krone
USD/SEK	USA/Sweden	US dollar – Swedish krona

Currency Pairs Trading Tip – The highest profits are in majors 

How to Verify Your XM Account With ID Only.

Learn How to Trade Forex – Lesson 1, What is Forex?

Lesson 2 – Trading For Beginners | What is Traded in Forex?

Lesson 3 | How to Make Money Trading Forex in Kenya | XM FX.

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