What is Forex?: What's Traded in Forex?

In what form is foreign exchange done? Money! Dinero! Geld!

Though this answer may seem simple, it can be confusing, because you do not receive any physical evidence in your hands of what you have purchased.

To help you understand, when you buy a currency when visiting a country, it’s as if you are buying stocks in a company. The amount you receive in exchange for your purchase will depend directly on what the market’s opinion and standing are of the economy and future of the country.

For example, when you buy a currency, like British pounds, you are purchasing a “share” in the British economy. You are taking a chance and betting that the British economy is doing well, and you are betting that it will also get better with time, increasing the value of your money. When the time comes for you to sell your “shares” back, you hope that your chance paid off and that you will end up with a profit, because the British economy improved.

Essentially, the rate of exchange of one currency versus that of another currency is a reflection of the state of that country’s economy, in comparison to the economies of other countries.

Once you have finished reading this article, you will have a clear understanding as to what forex is; and you will want to start buying and selling currencies yourself.

Major Currencies

The symbols for each different currency have three letters. The first two letters are the abbreviation of the country’s name, and the third letter is what identifies the country’s currency name.

It is relatively straightforward. Looking at an example from the table above, JPY can be broken down into JP which stands for Japan and Y which is the Japanese currency, Yen.

The currencies which are listed in the above table are known as the “majors”. This is because these currencies are the ones which are the most widely traded around the global foreign exchange market.

Something to take note of is, that the nicknames for each currency are not fixed. Some of the nicknames can be for other currencies as well. As well as, there are also many other nicknames which have not been noted. Depending on your country of origin, you may have different nicknames for your currency and money. Depending on the circumstance, they can be used interchangeably. Some countries may base the nickname for their currency on the person whose face is printed on the bill itself.