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What is Traded in Forex?
The forex (foreign exchange) market is where currencies are traded. Specifically, in the forex market, traders exchange one currency for another, speculating on the relative value of different currencies.
Money and Currencies
The primary instruments traded in the forex market are currencies, or money. Currencies represent the economic and political strength of a country or region. When you trade forex, you are essentially buying one currency and selling another, betting that the currency you buy will increase in value compared to the one you sell.
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Major Currencies
While there are many different currencies that can be traded in the forex market, some currencies are more widely traded than others. These are known as the “major currencies” and include:
US Dollar (USD)
Euro (EUR)
Japanese Yen (JPY)
British Pound (GBP)
Swiss Franc (CHF)
Canadian Dollar (CAD)
Australian Dollar (AUD)
New Zealand Dollar (NZD)
These major currencies represent some of the largest and most influential economies in the world. They are the most liquid and heavily traded currency pairs in the forex market.
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Currency Pairs
When trading forex, you always trade currency pairs, such as EUR/USD or USD/JPY. The first currency in the pair is the “base currency” and the second currency is the “quote currency.” The exchange rate reflects how much of the quote currency is needed to buy one unit of the base currency.
For example, if the EUR/USD exchange rate is 1.1800, it means that 1 euro can buy $1.18 US dollars. When you buy the EUR/USD pair, you are betting that the euro will increase in value compared to the US dollar.
In summary, the forex market is where currencies from around the world are traded against each other, with the major currency pairs being the most heavily traded. By speculating on the relative strength of different currencies, forex traders aim to profit from changes in exchange rates.