What is traded in forex?
MONEY!! Yes, we buy and sell money in forex. Confused already? Ok, now relax, and let’s learn.
The general mindset about trading is simply the buying and selling of goods (like physical stuff) using money, so when we talk about buying and selling money, some people become confused. However, it’s a simple concept, and we are here to help you understand it.
The first thing you need to know is that forex trading is not the buying and selling of goods. Rather, it is the buying and selling of currencies – money.
Basically, Forex trading involves the buying of one currency while simultaneously selling another in order to make a profit.
Think of buying a currency as buying a share in a particular country, just like buying stocks of a company. For example, in Forex trading, when you buy the American dollar, you have simply bought a “share” in the American economy, hoping to make some profit when you sell the dollar at a future date.
Well, I get it. You’re wondering how people profit by selling currencies. Just sit back and read on.
Currencies are constantly fluctuating. They always appreciate (rise) and depreciate (fall) depending on a country’s economy at a particular time. Forex traders take advantage of these uncertainties by speculating that a currency’s value will either appreciate or depreciate against another currency.
For example, let’s assume you purchase $1,000 by selling 360,000 nairas, In this case, you are simply betting that the value of the dollar will further increase against the naira. If your bet is correct and the value of the dollar increases, you will make a profit by later selling the dollars after which you will receive more than 360,000 nairas in return.
Am sure you’ll like to find out what currencies can be traded on Forex?
There are no restrictions as almost every currency in the world can be traded by any interested Forex trader, however, as a new trader, you will most likely start trading with the major currencies. The major currencies are more stable, therefore safer for the rookie trader.
Currencies are always written in three letters, for example, NGN, the first two letters stand for the country (NG -Nigeria), and the last letter stands for the currency name, (N-Naira).
Below is a table of the major currencies, including their symbol and nickname.
The currencies in the table above, are referred to as the major currencies because they are the widely traded ones.