What is Traded in Forex?
The simple answer to this question is money or cash. As there is no materialistic item involved this type of trading can be a little confusing for traders at first. Forex trading is basically like buying stocks of a company. For example, when you buy a US Dollar is very much like buying a share in the US economy. The price of that currency currently will implicate the direct reflection of markets’ opinions on the current and future economic conditions of that particular country.
Buying and Selling of Currency Pairs
There are two things under this: the buying rate and the selling rate. The buying rate is the rate at which the money dealers buy a particular foreign currency and the selling rate is the rate at which they wish to sell that particular currency. So the difference between these rates of buying and then selling the currencies is their profit. If the currency increases in value the trader may most probably close the trade with a gain. But in case a particular currency loses its value then the trader will surely incur a loss.
Major Currency Pairs in Forex Trading
In the Forex Trading there are several currency pairs. In order to find the relative value of the one currency pair into the other that will be used to compare the currency prices.
Base and Quote Currencies
If we see the currency the first currency is always considered as the base currency while the second is called the quote and the counter currency. The price of the one currency varies according to the other currency pairs.
Major Currency Pairs
The currency pairs are usually divided into the majors, minor and exotic currency pairs. All pair traded with the USD is known as the Major currency pairs:
Minor Currency Pairs or Major Cross Currency Pairs
Currency Pairs not associated with US Dollar are known as Minor Currency Pairs or Crosses. Major Crosses are derived from three major Non USD Currencies i.e. EUR, JPY and GBP.
Exotic Pairs are the combination of Major Pairs with the currencies of emerging countries like Brazil, Mexico, Turkey, Hungary or Chile. Some Exotic Currency Pairs are given below in the image.