What is Traded in Forex?

WHAT IS TRADED IN FOREX?

Forex involves the trading of currencies. This means that market participants buy and sell different world currencies. Since each country has its own currency, the forex market focuses on currency pairs that include two currencies. The forex market is global and decentralised, meaning currency trading can take place anytime and anywhere in the world.

Let’s take a closer look at what is specifically traded in forex.

 

1.Currency pairs

Currency pairs are the foundation of forex trading. Each currency pair involves two currencies: the base currency e os votos de moeda de cotação. The goal is to buy one currency and sell the other. The price of a currency pair indicates how much of the quote currency is needed to purchase one unit of the base currency.

Categories of currency pairs: Currency pairs are typically divided into several categories based on their liquidity and presence in the market. The main categories include:

1.     Major currency pairs (Major pairs): Major currency pairs consist of the largest and most traded world currencies, which have a strong presence in the market. Most trades are conducted with these pairs. They include the US dollar (USD) and other key currencies such as the euro, British pound, Japanese yen, and Swiss franc.

Exemplos:

·        EUR / USD (euro/US dollar)

·        GBP / USD (libra esterlina/dólar americano)

·        USD / JPY (dólar americano/ienes japoneses)

·        AUD / USD (dólar australiano/dólar americano)

·        USD / CHF (dólar americano/franco suíço)

Above pairs are all liquid (move more) because they are associated with the world’s largest economies.

 

2.     Cross currency pairs (Cross pairs): Cross currency pairs are combinations of two major currencies, but do not include the US dollar.

For example, currency pairs like EUR/GBP (euro/sterling) or EUR/JPY (euro/Japanese yen) are traded.

Exemplos:

·        EUR / GBP (euro/sterling)

·        GBP / JPY (libra esterlina / iene japonês)

·        AUD / JPY (Australian dollar/Japanese yen)

These pairs are less liquid than major pairs, but remain very popular among traders.

3.     Exotic currency pairs (exotic pairs): Exotic pairs include one major currency and one currency from a smaller economy.

Trading exotic pairs tends to be riskier as they are less liquid and often subject to greater price fluctuations.

Exemplos:

·        USD / TRY (US dollar/Turkish lira)

·        USD / ZAR (US dollar/South African rand)

·        EUR / INR (euro/Indian rupee)

Exotic currency pairs can offer high profits but also high risks due to volatility, political issues, or economic factors in these countries.