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Trading 101: what is traded in forex

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Here we are in the second installment of Trading 101. In this article we're going to talk about the instruments that are traded on FOREX.

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Trading 101: what is traded in forex

  1. 1. Trading 101: What Is Traded In FOREX? Here we are in the second installment of Trading 101. Today we're going to talk about the instruments that are traded on FOREX. Forex is the marketplace where currencies are traded. So, for the question: What is traded in FOREX? I can give you the short answer and the long answer. Short answer: It’s Money! Satisfied? Of course not. Well, I hope not. That’s for sure. Because if you want the gold, you’ll stay for the long answer. It’s where the real magic starts. As the proverb goes: “The Devil Is In The Details” In the FOREX market you buy or sell currencies. But not in the conventional sense. Because, you see, currencies are listed in pairs or ratios to be more exact. For example, you’ll find EUR/USD at a rate of 1.1245. What that means is 1 Euro is equal to 1.1245 Dollars. In other terms, you can buy 1 Euro for 1.1245 Dollars. Not that hard, isn’t it? Good. That means we can go further. Now, think about it a little. When you buy 1 Euro for 1.1245 Dollars. Aren’t you actually SELLING 1.1245 dollars for 1 Euro? Curious, huh!
  2. 2. Well, now you’re getting it. And that’s why I said it’s not buying and selling in the conventional sense. This peculiarity gives the FOREX market its uniqueness. You won’t find this in stocks, options or any other type of securities exchanged on the financial market. FOREX traders know this and they do take it into consideration, as it has deep implications on the way they go about their trading. 1.1245 is what's called "the exchange rate". Also, for the sake of simplicity we said that the EUR/USD = 1.1245. Which represents only half of the equation. Usually, you’ll find 2 rates. The bid and the ask. Depending on whether you’re going to buy or sell. But, understanding that isn’t an issue if you’re capable of wrapping your head around this concept.
  3. 3. • The Major 8: On the FOREX market, you’ll find currency pairs grouped into 4 categories: • The Majors: They always involve the US dollar and the currency of another major economy. • The Exotics: Consist of one major currency and one currency from an emerging market, such as Brazil, Mexico, or South Africa. • The Crosses: These currency-pairs don’t include the US dollar. • The Minors: Crosses that involve any of the major currencies are also known as minors. The major currencies are the ones that are traded the most. They represent the world’s biggest economies. The big whales. Here are the 8 Major currencies listed by daily average volume of transactions: CURRENCY DESCRIPTION DAILY AVERAGE VOLUME USD US Dollar $2.2 trillion EUR Euro $800 million JPY Japanese Yen $550 million GBP Pound Sterling $325 million AUD Australian Dollar $174 million CAD Canadian Dollar $130 million CHF Swiss Franc $122 million NZD New Zealand Dollar $52 million So, here you go. But wait! if you want to learn more, you need to see this:
  4. 4. How to start trading? What is FOREX?