What is Traded in Forex?

It’s an easy answer… money — various national currencies are traded. Since you’re not buying an actual item from Amazon that you can feel and touch, forex trading can be baffling. So, we’ll use a straightforward analogy to help clarify.

When you consider forex trading, think of buying currency as if you are buying a share in a specific country — like buying shares in a company. The price of the currency is typically a direct reflection of the market’s view on the current and future health of its individual economy.

In forex trading, when you buy, say, the British Pound, you are basically buying a share in the UK economy. You are wagering that the British economy will do well and might get better in the future. Once you sell those “shares” back to the market, hopefully, you will end up with a profit.

Commonly, the exchange rate of a currency against other currencies is a signal as to the condition of that nation’s economy, compared to others.

Major Currencies

There are a great number of currencies you can trade, but, as a forex trader, you will probably begin trading with the eight major currencies. They’re called major currencies because they’re the most heavily traded currencies and embody the world’s leading economies.

Forex traders vary on what they deem major currencies. Some only consider USD, EUR, JPY, GBP, and CHF as major currencies — and brand AUD, NZD, and CAD as commodity currencies. For us, and to keep things simple, we deem all eight as the majors.

Below, we catalog them by their symbol, nation, currency name, and common nicknames.

CODE COUNTRY CURRENCY NICKNAME
USD United States Dollar Buck
EUR Eurozone Euro Fiber
JPY Japan Yen Yen
GBP Great Britain Pound Cable
CHF Switzerland Franc Swissy
CAD Canada Dollar Loonie
AUD Australia Dollar Aussie
NZD New Zealand Dollar Kiwi

There are always three letters in each currency symbol — the first two letters identify the name of the country, and the third letter identifies the name of that country’s currency, normally the first letter of the currency’s name.

By 1973, the International Organization for Standardization (ISO) established the three-letter codes for currencies, and these three letters are known as ISO 4217 Currency Codes. Take AUD as an example. AU stands for Australia and D stands for dollar.

The currencies contained in the chart above are called the majors because they are the most commonly traded ones.