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2023-04-04 22:48

What is a Currency Pair? (What is traded in Forex?)

The question "what is traded in forex" is answered in this article. 
What is traded in Forex? What is traded in Forex?

If you have just become familiar with the forex market and getting basic information and want to know "what is traded in forex?" stay till the end of this article. As mentioned in the previous articles, Forex means Foreign Exchange Market, and it is an international market where anyone interested from all over the world can be active in this market. Of course, in the beginning, the forex market was only monopolized by banks, then countries' central banks, the world's biggest banks, institutions, and commercial companies were allowed to operate, and gradually the possibility of trading by the general public was also allowed.

Forex is the largest financial market in the world with the highest level of liquidity. Therefore, compared to markets such as real estate, countries' stock market has fewer fluctuations. On the other hand, because it is not easily subject to changes and fluctuations, unlike countries' stock markets, it works rationally and is predictable based on awareness and knowledge.

The main goals of trading in Forex are practical and commercial, but many enthusiasts enter this global market to make a profit. Today, millions of people worldwide are engaged in trading in the market. If you are also looking for a new way to invest and decide to work in the forex market, continue reading this article to get more information about what is traded in the forex market.

Contents

What is a Currency Pair? (Is it traded in the forex market?)
Currency Pairs Categories in Forex
The Most Traded Forex Currencies
What Are The Base & Quote Currency Concepts in Forex?
What Else Is Traded in Forex Besides Currency Pairs?

What is a Currency Pair? (Is it traded in the forex market?)

Forex stands for Foreign Exchange Market and means Foreign Currency Exchange. Therefore, it is a market where you, as a trader, can buy and sell the currency of different countries. Some say that Forex can be considered a local bank where currencies of different countries can be converted to each other. E.g., you give US dollars and receive Swiss francs in exchange.

The nature of Forex trading is different from the stock market. As you know, in the stock market, you receive several shares of companies accepted on the stock exchange and OTC for paying a certain amount, then after a while, you earn profit with the company's stock price growth, and after profiting You want to sell the shares again. But in the forex market, transactions are in pairs, i.a., the US dollar to the British pound or the Swiss franc to the US dollar. E.g., USD/CAD, EUR/USD, or USD/JPY. Forex is an opportunity to convert fiat currencies to each other and, as a result, profit from the price difference between the two currencies.

The forex market is a 24/7 market where you are not limited to working in this market, and you can work in this market at any time with any job and in any place and region you are, with a laptop and internet. Another advantage of forex is the two-sidedness of the market. It means that you can profit from both price growth and price decline.

Now, in response to the question "what is traded in the forex market?" we must say that in addition to the currencies of different countries, you can trade gold, silver, oil, gas, and shares of large and famous US and European companies such as Apple, stock market indices of some countries, bonds, cryptocurrencies (Bitcoin, etc.), and tradable funds.

Currency Pairs Categories in Forex

As you know, buying and selling currencies in Forex is done in pairs. These currency pairs are placed in two general categories, major currency pairs and secondary currency pairs, which are as follows:

Major Currency Pairs:

Major currency pairs are currency pairs that have the US dollar on one side, including EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, and AUD/USD. The main currency pairs are also known as Major currency pairs, which represent the biggest world economies and have a larger trading volume than other currency pairs, and a high percentage of traders are engaged in buying and selling them.

Secondary Currency Pairs:

Secondary currency pairs are currency pairs that do not have the US dollar on one side.In other words, a currency pair in which none of the two constituent currencies is USD. They are also called cross-currency pairs, which have less liquidity than the major currency pairs. That means cashing and selling them is slower than the main currency pairs. Cross-currency pairs include EUR/CHF, EUR/GBP, CAD/JPY, etc.

The most important secondary currency pairs in forex are the following three currency pairs:

EUR/GBP (European Euro to British Pound), GBP/JPY (British Pound to Japanese Yen), EUR/CHF (European Euro to Swiss Franc)

There are some currency pairs in the market where a strong currency, such as the US dollar, is placed against a newly emerging weak currency. E.g., USD/PLN (US Dollar vs. Polish Zloty) and GBP/MXN (Sterling vs. Mexican Peso). These are known as strange currency pairs and have very low liquidity. As a result, they have high spreads and are less noticed by traders.

Regional Currency Pairs:

These currency pairs are region based, such as EUR/NOK (European Euro vs. Norwegian Krone) and AUD/NZD (Australian Dollar vs. New Zealand Dollar).

If you pay attention to the currency pairs' code you will notice that the first two letters indicate the country or region, and the third letter indicates the first letter of the country's currency.

The Currency Pairs' Transaction Volume in Forex

Among other major currency pairs, EUR/USD with 84%, has the highest transaction volume. That means traders focus more on this currency pair. GBP/USD by 13% and USD/JPY by 12%. The other currency pairs include AUD/USD, USD/CHF, EUR/GBP, USD/CAD, and NZD/USD.

Get To Know The Forex Market's Major & Popular Currencies

According to statistics, there are 170 currencies in the forex market, which are involved in most of the US dollar transactions with the USD code. Therefore, the US dollar is one of the forex market's major, strong, and reliable currencies. Other popular currencies of the market are as follows when they are against the US dollar, they form the main currency pairs, and the forex market operators and experts recommend trading with the main currency pairs.

The Most Traded Forex Currencies

The most traded forex currencies represented by the G10 include:

  1. US dollar with the USD code
  2. European Union Euro with the EUR code
  3. British pound with the GBP code
  4. Japanese yen with the JPY code
  5. Australian dollar with the AUD code
  6. New Zealand dollar with the NZD code
  7. Canadian dollar with the CAD code
  8. Swiss franc with the CHF code
  9. Danish Krone with the DKK code
  10. Norwegian krone with the NOK code

What Are The Base & Quote Currency Concepts in Forex?

We have already learned that the transactions in Forex are in currency pairs, and we must use another currency to buy the desired currency. The first currency is called the base currency, and the second is called the quote currency. The currency pair's price equals the value of one unit of the base currency against the quote currency. If the price of this currency pair is equal to 145.229, it means that one pound is worth 145.229 dollars.

A Few Points Regarding Currency Pairs:

  • In trading the USD/CHF currency pair, you are buying USD and selling CHF.
  • The first currency is called the base currency, and the second is the quote or counter currency. In the example above, USD is the base currency, and CHF is the quote currency.
  • When buying a currency we buy a share of that country's economy.

What Else Is Traded in Forex Besides Currency Pairs?

  • Metals including gold with the XAU code, silver, palladium, platinum, and copper
  • Energy sources including oil and gas (WTI oil, Brent oil, OPEC oil)
  • Shares of US and European companies such as Apple, Google, and Amazon
  • Stock market indices, such as the US Dow Jones index and the US S&P500 index, Nasdaq (NASDAQ), the US dollar index with the DXY symbol, the Dax30 index (combining the shares of 30 major and large German companies traded on the Frankfurt Stock Exchange), etc.
  • Bonds such as the US 10-year bond with the US10Y symbol
  • Cryptocurrencies such as Bitcoin with the BTC symbol, Ethereum with the ETH symbol, Cardano with the ADA symbol, Litecoin with the LTC symbol, etc.
  • Exchange-traded funds or ETFs
The most important currency pairs and Forex market symbols The most important currency pairs and Forex market symbols

Conclusion

In this article, we got the answer to the question and learned that in the forex market, in addition to currency pairs, gold, silver, oil, gas, shares of large and famous US and European companies such as Apple, stock market indices of some countries, bonds, cryptocurrencies (Bitcoin, etc.) and tradable funds are also bought and sold. We also learned that the transactions were in currency pairs and learned about the main, minor, regional, and most traded currency pairs.

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