In forex trading, when you buy, say, the Japanese yen, you are basically buying a “share” in the Japanese economy.


You are betting that the Japanese economy is doing well, and will even get better as time goes.
Once you sell those “shares” back to the market, hopefully, you will end up with a profit.

While there are potentially lots of currencies you can trade, as a new forex trader, you will probably start trading with the “major currencies“.

They’re called “major currencies” because they’re the most heavily traded currencies and represent some of the world’s largest economies.
Forex traders differ on what they consider as “major currencies”.
The uptight ones who probably got straight A’s and followed all the rules as children only consider USD, EUR, JPY, GBP, and CHF as major currencies.
Then they label AUD, NZD, and CAD as “commodity currencies“.
For us rebels, and to keep things simple, we just consider all eight currencies as the “majors”.

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Major currencies, their codes and countries

Currency symbols always have three letters, where the first two letters identify the name of the country and the third letter identifies the name of that country’s currency, usually the first letter of the currency’s name.

These three letters are known as ISO 4217 Currency Codes.

Example:
USD
US- United States
D- Dollar

JPY
JP-Japan
Y-Yen

And many more…

Take another instance
NZD

NZ stands for New Zealand, while Dstands for dollar.
Easy enough, right?

So What is really forex trading?🥱🥱

Forex trading is the simultaneous buying of one currency and selling of another. 😤

Currencies are traded through a Forex Broker and are traded in pairs. Currencies are quoted in relation to another currency.
For example, the euro and the U.S. dollar (EUR/USD) or the British pound and the Japanese yen (GBP/JPY).


When you trade in the forex market, you buy or sell in currency pairs.

There are three categories of currency pairs:
- The “majors“
- The “crosses“
- The “exotics“

The major currency pairs always include the U.S. dollar.

Cross-currency pairs do NOT include the U.S. dollar. Crosses that involve any of the major currencies are also known as ” minors”.


Exotic currency pairs consist of one major currency and one currency from an emerging market (EM).

The majors are the most liquid in the world.


Liquidity is used to describe the level of activity in the financial market.

In forex, it’s based on the number of active traders buying and selling a specific currency pair and the volume being traded.

The more frequently traded something is the higher its liquidity.

For example, more people trade the EUR/USD currency pair and at higher volumes than the AUD/USD currency pair.

This means that EUR/USD is more liquid than AUD/USD.