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Buying and Selling Currencies for Profit

Forex trading, short for foreign exchange trading, involves buying and selling currencies like the US dollar, Japanese yen, and euro. By speculating on currency movements, you can potentially make a profit.


How it Works

Imagine you're trading currency pairs, like USD/JPY (US dollar vs Japanese yen). If you think the dollar will rise against the yen, you can buy USD/JPY. If your prediction is correct, you can sell the currency pair later for a profit.


It's All Online

Unlike exchanging cash at a currency booth, forex trading happens electronically. You buy and sell currencies through a forex trading platform. Any profits you make are credited to your account, and you can withdraw them to your bank account.


Understanding the Basics: Currency Symbols

The forex market uses currency symbols for simplicity. So, USD represents the US dollar, JPY represents the Japanese yen, and EUR represents the euro.

The most commonly traded currencies are listed in the table below.


CURRENCY

COUNTRY

SYMBOL

NICKNAME

US dollar

United States of America

USD

buck

Euro

In 17 eurozone countries

EUR

fibre

Pound sterling

Great Britain

GBP

cable

Japanese yen

Japan

JPY

yen

Swiss franc

Switzerland

CHF

swissy

Canadian dollar

Canada

CAD

loonie

Australian dollar

Australia

AUD

aussie

New Zealand dollar

New Zealand

NZD

kiwi

How Currency Pairs Work


Forex Trading: Buying and Selling Currency Pairs

Forex trading revolves around buying one currency and simultaneously selling another. These two currencies are quoted together as a currency pair, like USD/JPY (US dollar versus Japanese yen).

Imagine you're trading USD/JPY. You believe the US dollar will strengthen compared to the yen. So, you would buy USD/JPY, essentially buying US dollars and selling yen. If your prediction is on target, you can later sell USD/JPY for a profit.


Why Currency Pairs?

Think of the first currency in a pair (USD in our example) like a potato. To buy that potato, you need to pay with another currency (JPY). In forex trading, you're always exchanging currencies relative to each other.


The Three Categories of Currency Pairs

There are three main categories of currency pairs in the forex market:

  • Major pairs: These are the most frequently traded pairs, usually including the US dollar (USD) like USD/JPY, EUR/USD (euro vs US dollar), and GBP/USD (British pound vs US dollar).Major currency pairs (majors) are traded most frequently, and they all contain the US dollar (USD).

PAIR

COUNTRY OF ORIGIN

MEANING

EUR/USD

Eurozone/USA

Euro – US dollar

USD/JPY

USA/Japan

US dollar – Yen

GBP/USD

United Kingdom/USA

Pound sterling – US dollar

USD/CHF

USA/Switzerland

US dollar – Swiss franc

USD/CAD

USA/Canada

US dollar – Canadian dollar

AUD/USD

Australia/USA

Australian dollar – US dollar

NZD/USD

New Zealand/USA

New Zealand dollar – US dollar

  • Minors: Minor currency pairs (crosses) don’t contain the USD. The most active ones contain EUR, JPY, and GBP. These involve less-traded currencies but still represent developed economies.

EURO MINORS

YEN MINORS

POUND MINORS

OTHER MINORS

EUR/CHF

EUR/JPY

GBP/CHF

AUD/CHF

EUR/GBP

GBP/JPY

GBP/AUD

AUD/CAD

EUR/CAD

CHF/JPY

GBP/CAD

AUD/NZD

EUR/AUD

CAD/JPY

GBP/NZD

CAD/CHF

EUR/NZD

AUD/JPY


NZD/CHF


NZD/JPY


NZD/CAD

  • Exotic pairs: These involve currencies from emerging economies or less-traded countries, often paired with a major currency like USD/TRY (US dollar vs Turkish lira) or EUR/MXN (euro vs Mexican peso). Exotic currency pairs contain one major currency as the base currency, paired with any non-major currency, such as South African rand, Mexican peso, or Danish krone. Exotic pairs are not so widely traded.

PAIR

COUNTRY OF ORIGIN

MEANING

USD/HKD

USA/Hong Kong

US dollar – Hong Kong dollar

USD/SGD

USA/Singapore

US dollar – Singapore dollar

USD/ZAR

USA/South Africa

US dollar – South African rand

USD/THB

USA/Thailand

US dollar – Thai baht

USD/HUF

USA/Hungary

US dollar – Hungarian forint

USD/MXN

USA/Mexico

US dollar – Mexican peso

USD/DKK

USA/Denmark

US dollar – Danish krone

USD/SEK

USA/Sweden

US dollar – Swedish krona


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