Know When to Buy or Sell a Currency Pair

Forex trading involves trying to predict which currency will rise or fall versus another currency.

How do you know when to buy or sell a currency pair?

In the following examples, we are going to use a little fundamental analysis to help us decide whether to buy or sell a specific currency pair.

The supply and demand for a currency changes due to various economic factors, which drives currency exchange rates up and down.

Each currency belongs to a country (or region). So forex fundamental analysis focuses on the overall state of the country’s economy,  such as productivity, employment, manufacturing, international trade, and interest ratezzzzzzzz.

Wake up!

If you always fell asleep during your economics class or just flat out skipped economics class, don’t worry!

We will cover fundamental analysis in a later lesson.

Learn to Trade Forex

But right now, try to pretend you know what’s going on…

EUR/USD

In this example, the euro is the base currency and thus the “basis” for the buy/sell.

 

If you believe that the U.S. economy will continue to weaken, which is bad for the U.S. dollar, you would execute a BUY EUR/USD order.

 

By doing so, you have bought euros in the expectation that it will rise versus the U.S. dollar.

If you believe that the U.S. economy is strong and the euro will weaken against the U.S. dollar, you would execute a SELL EUR/USD order.

By doing so, you have sold euros in the expectation that it will fall versus the US dollar.

USD/JPY

In this example, the U.S. dollar is the base currency and thus the “basis” for the buy/sell.

If you think that the Japanese government is going to weaken the yen in order to help its export industry, you would execute a BUY USD/JPY order.

 

By doing so you have bought U.S dollars in the expectation that it will rise versus the Japanese yen.

 

If you believe that Japanese investors are pulling money out of U.S. financial markets and converting all their U.S. dollars back to yen, and this will hurt the U.S. dollar, you would execute a SELL USD/JPY order.

By doing so you have sold U.S dollars in the expectation that it will depreciate against the Japanese yen.

GBP/USD

In this example, the pound is the base currency and thus the “basis” for the buy/sell.

 

If you think the British economy will continue to do better than the U.S. in terms of economic growth, you would execute a BUY GBP/USD order.

 

By doing so you have bought pounds in the expectation that it will rise versus the U.S. dollar.

If you believe the British economy is slowing while the American economy remains strong like Chuck Norris, you would execute a SELL GBP/USD order.

By doing so you have sold pounds in the expectation that it will depreciate against the U.S. dollar.

How to trade forex with USD/CHF

In this example, the U.S. dollar is the base currency and thus the “basis” for the buy/sell.

If you think the Swiss franc is overvalued, you would execute a BUY USD/CHF order.

By doing so you have bought U.S. dollars in the expectation that it will appreciate versus the Swiss Franc.

If you believe that the U.S. housing market weakness will hurt future economic growth, which will weaken the dollar, you would execute a SELL USD/CHF order.

By doing so, you have sold U.S. dollars in the expectation that it will depreciate against the Swiss franc.

Trading in “Lots”

When you go to the grocery store and want to buy an egg, you can’t just buy a single egg, they come in dozens or “lots” of 12.

In forex, it would be just as foolish to buy or sell 1 euro, so they usually come in “lots” of 1,000 units of currency (micro lot), 10,000 units (mini lot), or 100,000 units (standard lot) depending on your broker and the type of account you have (more on “lots” later).

Margin Trading

“But I don’t have enough money to buy 10,000 euros! Can I still trade?”

You can! By using leverage.

When you trade with leverage, you wouldn’t need to pay the 10,000 euros upfront. Instead, you’d put down a small “deposit”, known as margin.

Leverage is the ratio of the transaction size (“position size”) to the actual cash (“trading capital”) used for margin.

For example, 50:1 leverage, also known as a 2% margin requirement, means $2,000 of margin is required to open a position size worth $100,000.

 

Margin trading lets you open large position sizes using only a fraction of the capital you’d normally need.

 

This is how you’re able to open $1,250 or $50,000 positions with as little as $25 or $1,000.

You can conduct relatively large transactions with a small amount of initial capital.

Let us explain.

We will be discussing margin in more detail later, but hopefully, you’re able to get the basic idea of how it works.

Listen carefully because this is very important!

  • You believe that signals in the market are indicating that the British pound will go up against the U.S. dollar.
  • You open one standard lot (100,000 units GBP/USD), buying with the British pound with a 2% margin requirement.
  • You wait for the exchange rate to climb.
  • When you buy one lot (100,000 units) of GBP/USD at a price of 1.50000, you are buying 100,000 pounds, which is worth $150,000 (100,000 units of GBP * 1.50000).
  • Since the margin requirement was 2%, then US$3,000 would be set aside in your account to open up the trade ($150,000 * 2%).
  • You now control 100,000 pounds with just $3,000. 
  • Your predictions come true and you decide to sell. You close the position at 1.50500. You earn about $500.
Your Actions GBP USD
You buy 100,000 pounds at the exchange rate of 1.5000 +100,000 -150,000
You take a power nap for 20 minutes and the GBP/USD exchange rate rises to 1.5050 and you sell. -100,000 +150,500
You have earned a profit of $500. 0 +500

When you decide to close a position, the deposit (“margin”) that you originally made is returned to you and a calculation of your profits or losses is done.

This profit or loss is then credited to your account.

Let’s review the GBP/USD trade example above.

  • GBP/USD went up by a mere half a pence! Not even one pence. It was half a pence!
  • But you made $500!
  • While taking a power nap!
  • How? Because you weren’t trading just £1.
  • If your position size was £1, yes, you would’ve made only half a pence.
  • But…your position size was £100,000 (or $150,000) when you opened the trade.
  • What’s neat is that you didn’t have to put up that entire amount.
  • All that was required to open the trade was $3,000 in the margin.
  • $500 profit from $3,000 in the capital is a 16.67% return!
  • In twenty minutes!
  • That’s the power of leveraged trading!
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Long or short position in Forex Market

“Long” and “Short”

How Trading Forex Works
First, you should determine whether you want to buy or sell.

If you want to buy (which actually means buy the base currency and sell the quote currency), you want the base currency to rise in value and then you would sell it back at a higher price.

In trader talk, this is called “going long” or taking a “long position.” Just remember: long = buy.

If you want to sell (which actually means sell the base currency and buy the quote currency), you want the base currency to fall in value and then you would buy it back at a lower price.

This is called “going short” or taking a “short position”.

Just remember: short = sell.

How to make money trading forex by going long and short at the same time.

 

“I’m long AND short.”

Flat or Square

If you have no open position, then you are said to be “flat” or “square”.

Closing a position is also called “squaring up“.

Forex Square Trade

 

“I’m square.”

The Bid, Ask and Spread

All forex quotes are quoted with two prices: the bid and ask.

In general, the bid is lower than the ask price.

EUR/USD forex quote

What is “Bid”?

The bid is the price at which your broker is willing to buy the base currency in exchange for the quote currency.

This means the bid is the best available price at which you (the trader) can sell to the market.

If you want to sell something, the broker will buy it from you at the bid price.

What is “Ask”?

The ask is the price at which your broker will sell the base currency in exchange for the quote currency.

This means the ask price is the best available price at which you can buy from the market.

Another word for ask is the offer price.

If you want to buy something, the broker will sell (or offer) it to you at the ask price.

What is “Spread”?

The difference between the bid and the ask price is known as the SPREAD.

On the EUR/USD quote above, the bid price is 1.34568 and the ask price is 1.34588. Look at how this broker makes it so easy for you to trade away your money.

  • If you want to sell EUR, you click “Sell” and you will sell euros at 1.34568.
  • If you want to buy EUR, you click “Buy” and you will buy euros at 1.34588.

Here’s an illustration that puts together everything we’ve covered in this lesson:

Bid, Ask and Spread Example in Forex Trading

Now let’s take a look at some examples.

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How to Make Money Trading Forex

What is forex trading?

How does forex trading work?

In the forex market, you buy or sell currencies.

Placing a trade in the foreign exchange market is simple. The mechanics of a trade are very similar to those found in other financial markets (like the stock market), so if you have any experience in trading, you should be able to pick it up pretty quickly.

How To Make Money Trading Forex

And if you don’t, you’ll still be able to pick it up….as long as you finish School of Pipsology, our forex trading course!

The objective of forex trading is to exchange one currency for another in the expectation that the price will change.

More specifically, that the currency you bought will increase in value compared to the one you sold.

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The Different Ways To Trade Forex

Because forex is so awesome, traders came up with a number of different ways to invest or speculate in currencies.

Among the financial instruments, the most popular ones are retail forex, spot FX, currency futures, currency options, currency exchange-traded funds (or ETFs), forex CFDs, and forex spread betting.

Trade Forex In Different Ways

It’s important to point out that we are covering the different ways that individual (“retail”) traders can trade FX.

Other financial instruments like FX swaps and forwards are not covered since they cater to institutional traders.

With that out of the way, let’s now discuss how you can partake in the world of forex.

Currency Futures
Futures are contracts to buy or sell a certain asset at a specified price on a future date (That’s why they’re called futures!).

A currency future is a contract that details the price at which a currency could be bought or sold and sets a specific date for the exchange.

Currency futures were created by the Chicago Mercantile Exchange (CME) way back in 1972 when bell-bottoms and platform boots were still in style.
Since futures contracts are standardized and traded on a centralized exchange, the market is very transparent and well-regulated.

This means that price and transaction information are readily available.

You can learn more about CME’s FX futures here.

Currency Options
An “option” is a financial instrument that gives the buyer the right or the option, but not the obligation, to buy or sell an asset at a specified price on the option’s expiration date.

If a trader “sold” an option, then he or she would be obliged to buy or sell an asset at a specific price at the expiration date.
Just like futures, options are also traded on an exchange, such as the Chicago Mercantile Exchange (CME), the International Securities Exchange (ISE), or the Philadelphia Stock Exchange (PHLX).

However, the disadvantage in trading FX options is that market hours are limited for certain options and the liquidity is not nearly as great as the futures or spot market.

Currency ETFs
A currency ETF offers exposure to a single currency or basket of currencies.

Currency ETFs allow ordinary individuals to gain exposure to the forex market through a managed fund without the burdens of placing individual trades.

Currency ETFs can be used to speculate on forex, diversify a portfolio, or hedge against currency risks.

Here’s a list of the most popularly traded currency ETFs.

ETFs are created and managed by financial institutions that buy and hold currencies in a fund. They then offer shares of the fund to the public on an exchange allowing you to buy and trade these shares just like stocks.
Like currency options, the limitation in trading currency ETFs is that the market isn’t open 24 hours. Also, ETFs are subject to trading commissions and other transaction costs.

Spot FX
The spot FX market is an “off-exchange” market, also known as an over-the-counter (“OTC”) market.

The off-exchange forex market is a large, growing, and liquid financial market that operates 24 hours a day.

It is not a market in the traditional sense because there is no central trading location or “exchange”.

In an OTC market, a customer trades directly with a counterparty.

Unlike currency futures, ETFs, and (most) currency options, which are traded through centralized markets, spot FX are over-the-counter contracts (private agreements between two parties).

Most of the trading is conducted through electronic trading networks (or telephone).

The primary market for FX is the “interdealer” market where FX dealers trade with each other. A dealer is a financial intermediary that stands ready to buy or sell currencies at any time with its clients.

The interdealer market is also known as the “interbank” market due to the dominance of banks as FX dealers.

The interdealer market is only accessible to institutions that trade in large quantities and have a very high net worth.

This includes banks, insurance companies, pension funds, large corporations, and other large financial institutions manage the risks associated with fluctuations in currency rates.

Physical Dleivery of CurrencyIn the spot FX market, an institutional trader is buying and selling an agreement or contract to make or take delivery of a currency.

A spot FX transaction is a bilateral (“between two parties”) agreement to physically exchange one currency against another currency.

This agreement is a contract. This means this spot contract is a binding obligation to buy or sell a certain amount of foreign currency at a price that is the “spot exchange rate” or the current exchange rate.

So if you buy EUR/USD on the spot market, you are trading a contract that specifies that you will receive a specific amount of euros in exchange for U.S dollars at an agreed-upon price (or exchange rate).

It’s important to point out that you are NOT trading the underlying currencies themselves, but a contract involving the underlying currencies.

Even though it’s called “spot”, transactions aren’t exactly settled “on the spot”.

In reality, while a spot FX trade is done at the current market rate, the actual transaction is not settled until two business days after the trade date.

This is known as T+2 (“Today plus 2 business days”).

It means that delivery of what you buy or sell should be done within two working days and is referred to as the value date or delivery date.

For example, an institution buys EUR/USD in the spot FX market.

The trade opened and closed on Monday has a value date on Wednesday. This means that it’ll receive euros on Wednesday.

Not all currencies settle T+2 though. For example, USD/CAD, USD/TRY, USD/RUB and USD/PHP value date is T+1, meaning one business day going forward from today (T).

Trading in the actual spot forex market is NOT where retail traders trade though.

Retail Forex
There is a secondary OTC market that provides a way for retail (“poorer”) traders to participate in the forex market.

Access is granted by so-called “forex trading providers“.

Forex trading providers trade in the primary OTC market on your behalf. They find the best available prices and then add a “markup” before displaying the prices on their trading platforms.

This is similar to how a retail store buys inventory from a wholesale market, adds a markup, and shows a “retail” price to their customers.

Forex trading providers are also known as “forex brokers”. Technically, they are not brokers because a broker is supposed to simply act as a middleman between a buyer and a seller (“between two parties”). But this is not the case, because a forex trading provider acts as your counterparty. This means if you are the buyer, it acts as the seller. And if you are the seller, it acts as the buyer. To keep things simple for now, we will still use the term “forex broker” since that’s what most people are familiar with but it’s important to know the difference.

Although a spot forex contract normally requires delivery of currency within two days, in practice, nobody takes delivery of any currency in forex trading.

The position is “rolled” forward on the delivery date.

Especially in the retail forex market.

Remember, you are actually trading a contract to deliver the underlying currency, rather than the currency itself.

It’s not just a contract, it’s a leveraged contract.

Retail forex traders can’t “take or make delivery” on leveraged spot forex contracts.

Leverage allows you to control large amounts of currency for a very small amount.

Retail forex brokers let you trade with leverage which is why you can open positions valued at 50 times the amount of the initial required margin.

So with $2,000, you can open a EUR/USD trade valued at $100,000.

Imagine if you went short EUR/USD and had to deliver $100,000 worth of euros!

You’d be unable to settle the contract in cash since you only have $2,000 in your account. You wouldn’t have enough funds to cover the transaction!

So you either have to close the trade before it settles or “roll” it over.

To avoid this hassle of physical delivery, retail forex brokers automatically “roll” client positions.

When a spot forex transaction is not physically delivered but just indefinitely rolled forward until the trade is closed, it is known as a “rolling spot forex transaction” or “rolling spot FX contract“. In the U.S., the CFTC calls it a “retail forex transaction“.

This is how you avoid being forced to accept (or deliver) 100,000 euros.

Retail forex transactions are closed out by entering into an equal but opposite transaction with your forex broker.

For example, if you bought British pounds with U.S. dollars, you would close out the trade by selling British pounds for U.S. dollars.

This is also called offsetting or liquidating a transaction.

If you have a position left open at the close of the business day, it will be automatically rolled over to the next value date to avoid the delivery of the currency.

Your retail forex broker will automatically keep on rolling over your spot contract for you indefinitely until it is closed.

The procedure of rolling the currency pair over is known as Tomorrow-Next or “Tom-Next“, which stands for “Tomorrow and the next day.”

When positions are rolled over, this results in either interest being paid or earned by the trader.

These charges are known as a swap fee or rollover fee. Your forex broker calculates the fee for you and will either debit or credit your account balance.

Retail forex trading is considered speculative. This means traders are trying to “speculate” or make bets on (and profit from) the movement of exchange rates. They’re not looking to take physical possession of the currencies they buy or deliver the currencies they sell

Forex Spread Bet
Spread betting is a derivative product, which means you don’t take ownership of the underlying asset but speculate on whichever direction you think its price will move up or down

A forex spread bet enables you to speculate on the future price direction of a currency pair.

A currency pair’s price being used on the spread bet is “derived” from the currency pair’s price on the spot FX market.

Your profit or loss is dictated by how far the market moves in your favor before you close your position and how much money you have bet per “point” of price movement.

Spread betting on forex is provided by “spread betting providers“.

Unfortunately, if you live in the U.S., spread betting is considered illegal. Despite being regulated by the FSA in the U.K., the U.S. considers spread betting to be internet gambling which is currently forbidden.

Forex CFD
A contract for difference (“CFD”) is a financial derivative. Derivative products track the market price of an underlying asset so that traders can speculate on whether the price will rise or fall.

The price of a CFD is “derived” from the underlying asset’s price.

A CFD is a contract, typically between a CFD provider and a trader, where one party agrees to pay the other the difference in the value of a security, between the opening and closing of the trade.

In other words, a CFD is basically a bet on a particular asset going up or down in value, with the CFD provider and you agree that whoever wins the bet will pay the other the difference between the asset’s price when you enter the trade and its price when you exit the trade.

A forex CFD is an agreement (“contract”) to exchange the difference in the price of a currency pair from when you open your position versus when you close it.

A currency pair’s CFD price is “derived” from the currency pair’s price on the spot FX market. (Or at least it should be. If not, what is the CFD provider basing its price on? 🤔)

Trading forex CFDs gives you the opportunity to trade a currency pair in both directions. You can take both long and short positions.

If the price moves in your chosen direction, you would make a profit, and if it moves against you, you would make a loss.

In the EU and UK, regulators decided that “rolling spot FX contracts” are different from the traditional spot FX contract.

The main reason being is that with rolling spot FX contracts, there is no intention to ever take actual physical delivery (“take ownership”) of a currency, its purpose is to simply speculate on the price movement in the underlying currency.

The objective of trading a rolling spot FX contract is to gain exposure to price fluctuations related to the underlying currency pair without actually owning it.

So to make this differentiation clear, a rolling spot FX contract is ruled as a CFD. (In the U.S., CFDs are illegal so it’s known as a “retail forex transaction”)

Forex CFD trading is provided by “CFD providers“.

Outside the U.S., retail forex trading is usually done with CFDs or spread bets.

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Forex Market Size And Liquidity

The bulk of forex trading takes place on what’s called the “interbank market“.

Unlike other financial markets like the New York Stock Exchange (NYSE) or London Stock Exchange (LSE), the forex market has neither a physical location nor a central exchange.

The forex market is considered an over-the-counter (OTC) market due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period.

This means that the FX market is spread all over the globe with no central location.
Trades can take place anywhere as long as you have an Internet connection!

Forex Interbank Network

The forex OTC market is by far the biggest and most popular financial market in the world, traded globally by a large number of individuals and organizations.

In an OTC market, participants determine who they want to trade with depending on trading conditions, the attractiveness of prices, and the reputation of the trading counterparty (the other party who takes the opposite side of your trade).

The chart below shows the seven most actively traded currencies.

Currency Distribution in Forex Market

*Because two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%

The U.S. dollar is the most traded currency, making up 84.9% of all transactions!

The euro’s share is second at 39.1%, while that of the yen is third at 19.0%.

As you can see, most of the major currencies are hogging the top spots on this list!

The Dollar is King in the Forex Market
King Dollar

You’ve probably noticed how often we keep mentioning the U.S. dollar (USD).

If the USD is one-half of every major currency pair, and the majors comprise 75% of all trades, then it’s a must to pay attention to the U.S. dollar. The USD is king!
Currency Composition of World FX Reserves In Forex Market

In fact, according to the International Monetary Fund (IMF), the U.S. dollar comprises roughly 62% of the world’s official foreign exchange reserves!

Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies.

Because almost every investor, business, and central bank own it, they pay attention to the U.S. dollar.

Chasing the Forex Market

There are also other significant reasons why the U.S. dollar plays a central role in the forex market:

The United States economy is the LARGEST economy in the world.
The U.S. dollar is the reserve currency of the world.
The United States has the largest and most liquid financial markets in the world.
The United States has a stable political system.
The United States is the world’s sole military superpower.
The U.S. dollar is the medium of exchange for many cross-border transactions. For example, oil is priced in U.S. dollars. Also called “petrodollars.” So if Mexico wants to buy oil from Saudi Arabia, it can only be bought with the U.S. dollar. If Mexico doesn’t have any dollars, it has to sell its pesos first and buy U.S. dollars.
USD as Reserve Currency

Speculation in the Forex Market
One important thing to note about the forex market is that while commercial and financial transactions are part of the trading volume, most currency trading is based on speculation.

In other words, most of the trading volume comes from traders that buy and sell based on the short-term price movements of currency pairs.

Questions about the forex market

The trading volume brought about by speculators is estimated to be more than 90%!

The scale of the forex market means that liquidity – the amount of buying and selling volume happening at any given time – is extremely high.

This makes it very easy for anyone to buy and sell currencies.

From the perspective of a trader, liquidity is very important because it determines how easily price can change over a given time period.

A liquid market environment like forex enables huge trading volumes to happen with very little effect on the price, or price action.
While the forex market is relatively very liquid, the market depth could change depending on the currency pair and time of day.

In our forex trading sessions part of the School, we’ll explain how the time of your trades can affect the pair you’re trading.

In the meantime, let’s learn about the different ways that individuals can trade currencies.

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Buying And Selling Currency Pairs

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

Currencies are traded through a broker or dealer 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.
Buying and Selling in Currency Pairs

Imagine each currency pair constantly in a “tug of war” with each currency on its own side of the rope.

An exchange rate is the relative price of two currencies from two different countries.

Exchange rates fluctuate based on which currency is stronger at the moment.

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).

Major Currency Pairs
EUR/USD Currency Pair

The currency pairs listed below are considered the “majors.”

These pairs all contain the U.S. dollar (USD) on one side and are the most frequently traded.

Compared to the crosses and exotics, price moves more frequently with the majors, which provide more trading opportunities.

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.

Major Cross-Currency Pairs or Minor Currency Pairs
Currency pairs that don’t contain the U.S. dollar (USD) are known as cross-currency pairs or simply as the “crosses.”

Major crosses are also known as “minors.”

While not as frequently traded as the majors, the crosses are still pretty liquid and still provide plenty of trading opportunities.

The most actively traded crosses are derived from the three major non-USD currencies: EUR, JPY, and GBP.

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What Is Traded In Forex?

The simple answer is MONEY. Specifically, currencies.

Because you’re not buying anything physical, forex trading can be confusing so we’ll use a simple (but imperfect) analogy to help explain.

Think of buying a currency as buying a share in a particular country, kinda like buying shares in a company.

The price of the currency is usually a direct reflection of the market’s opinion on the current and future health of its respective economy.

When you buy, say, the Japanese yen in forex trading, 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.

In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country’s economy, compared to other economies.

By the time you graduate from this School of Pipsology, you’ll be eager to start working with currencies.
Major Currencies
While there are potentially lots of currencies you can trade, you will probably start trading with the “major currencies“as a new forex trader.

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”.

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.

By 1973, the International Organization for Standardization (ISO) established the three-letter codes for currencies that we use today.

Currency Code

Take NZD for instance…

NZ stands for New Zealand, while D stands for dollar.

Easy enough, right?

The currencies included in the chart above are called the “majors” because they are the most widely traded ones.

DID YOU KNOW? The British pound is the world’s oldest currency that’s still in use, dating back to the 8th century. The newest currency in the world is the South Sudanese pound, made official on July 18, 2011.

We’d also like to let you know that “buck” isn’t the only nickname for USD.
There’s also: greenbacks, bones, Benji’s, benjamins, cheddar, paper, loot, scrilla, cheese, bread, moolah, dead presidents, and cash.

So, if you wanted to say, “I have to go to work now.”

Instead, you could say, “Yo, I gotta bounce! Gotta make them Benji’s son!”

FUN FACT: In Peru, a nickname for the U.S. dollar is Coco, which is a pet name for Jorge (George in Spanish), a reference to the portrait of George Washington on the $1 note?

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What is Forex?

Trading forex involves the buying of one currency and simultaneous selling of another. In forex, traders attempt to profit by buying and selling currencies by actively speculating on the direction currencies are likely to take in the future.
The foreign exchange market, which is usually known as “forex” or “FX,” is the largest financial market in the world.

The FX market is a global, decentralized market where the world’s currencies change hands. Exchange rates change by the second so the market is constantly in flux.

Only a tiny percentage of currency transactions happen in the “real economy” involving international trade and tourism like the airport example above.

Instead, most of the currency transactions that occur in the global foreign exchange market are bought (and sold) for speculative reasons.

Currency traders (also known as currency speculators) buy currencies hoping that they will be able to sell them at a higher price in the future.

Compared to the “measly” $22.4 billion per day volume of the New York Stock Exchange (NYSE), the foreign exchange market looks absolutely ginormous with its $6.6 TRILLION a day trade volume.

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