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1. What is Forex

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:

  1. The “majors
  2. The “crosses
  3. 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.

CURRENCY PAIRCOUNTRIESFX GEEK SPEAK
EUR/USDEurozone / United States“euro dollar”
USD/JPYUnited States / Japan“dollar yen”
GBP/USDUnited Kingdom / United States“pound dollar”
USD/CHFUnited States/ Switzerland“dollar swissy”
USD/CADUnited States / Canada“dollar loonie”
AUD/USDAustralia / United States“aussie dollar”
NZD/USDNew Zealand / United States“kiwi dollar”

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.

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: EURJPY, and GBP.

Euro Crosses

CURRENCY PAIRCOUNTRIESFX GEEK SPEAK
EUR/CHFEurozone / Switzerland“euro swissy”
EUR/GBPEurozone / United Kingdom“euro pound”
EUR/CADEurozone / Canada“euro loonie”
EUR/AUDEurozone / Australia“euro aussie”
EUR/NZDEurozone / New Zealand“euro kiwi”
EUR/SEKEurozone / Sweden“euro stockie”
EUR/NOKEurozone / Norway“euro nockie”

Yen Crosses

CURRENCY PAIRCOUNTRIESFX GEEK SPEAK
EUR/JPYEurozone / Japan“euro yen” or “yuppy”
GBP/JPYUnited Kingdom / Japan“pound yen” or “guppy”
CHF/JPYSwitzerland / Japan“swissy yen”
CAD/JPYCanada / Japan“loonie yen”
AUD/JPYAustralia / Japan“aussie yen”
NZD/JPYNew Zealand / Japan“kiwi yen”

Pound Crosses

PAIRCOUNTRIESFX GEEK SPEAK
GBP/CHFUnited Kingdom / Switzerland“pound swissy”
GBP/AUDUnited Kingdom / Australia“pound aussie”
GBP/CADUnited Kingdom / Canada“pound loonie”
GBP/NZDUnited Kingdom / New Zealand“pound kiwi”

Other Crosses

PAIRCOUNTRIESFX GEEK SPEAK
AUD/CHFAustralia / Switzerland“aussie swissy”
AUD/CADAustralia / Canada“aussie loonie”
AUD/NZDAustralia / New Zealand“aussie kiwi”
CAD/CHFCanada / Switzerland“loonie swissy”
NZD/CHFNew Zealand / Switzerland“kiwi swissy”
NZD/CADNew Zealand / Canada“kiwi loonie”

Exotic Currency Pairs

Exotic Currency Pairs

No, exotic pairs are not exotic belly dancers who happen to be twins.

Exotic currency pairs are made up of one major currency paired with the currency of an emerging economy, such as Brazil, Mexico, Chile, Turkey, or Hungary.The chart below contains a few examples of exotic currency pairs.

Wanna take a shot at guessing what those other currency symbols stand for?

Depending on your forex broker, you may see the following exotic currency pairs so it’s good to know what they are.

Keep in mind that these pairs aren’t as heavily traded as the “majors” or “crosses,” so the transaction costs associated with trading these pairs are usually bigger.

CURRENCY PAIRCOUNTRIESFX GEEK SPEAK
USD/BRLUnited States / Brazil“dollar real”
USD/HKDUnited States / Hong Kong
USD/SARUnited States / Saudi Arabia“dollar riyal”
USD/SGDUnited States / Singapore“dollar sing”
USD/ZARUnited States / South Africa“dollar rand”
USD/THBUnited States / Thailand“dollar baht”
USD/MXNUnited States / Mexico“dollar mex”
USD/RUBUnited States / Russia“dollar ruble” or “Barney”
USD/PLNUnited States / Poland“dollar zloty”
USD/CLPUnited States/ Chile

It’s not unusual to see spreads that are two or three times bigger than that of EUR/USD or USD/JPY.

Due to the overall lower degree of liquidity, exotic currency pairs tend to be far more sensitive to economic and geopolitical events.

For example, a political scandal or unexpected election results can cause an exotic pair’s exchange rate to swing violently.

So if you want to trade exotics currency pairs, remember to factor this in your decision.

For those of y’all who are really mesmerized by exotics, here’s a more comprehensive list.

CURRENCY CODECOUNTRYCURRENCY CODECOUNTRY
AEDUAE DirhamARSArgentinean Peso
AFNAfghanistan AfghaniGELGeorgian Lari
MYRMalaysian RinggitAMDArmenian Dram
GYDGuyanese DollarMZNMozambique new Metical
AWGAruban FlorinIDRIndonesian Rupiah
OMROmani RialAZNAzerbaijan New Manat
IQDIraqi DinarQARQatari Rial
BHDBahraini DinarIRRIranian Rial
SLLSierra Leone LeoneBWPBotswana Pula
JODJordanian DinarTJSTajikistani Somoni
BYRBelarusian RubleKGSKyrgyzstanian Som
TMTTurkmenistan new ManatCDFCongolese Franc
LBPLebanese PoundTZSTanzanian Schilling
DZDAlgerian DinarLRDLiberian Dollar
UZSUzbekistan SomEGPEgyptian Pound
MADMoroccan DirhamWSTSamoan Tala
EEKEstonian KroonMNTMongolian Tugrik
MWKMalawi KwachaETBEthiopian Birr
THBThai BahtTRYNew Turkish Lira
ZARSouth African RandZWDZimbabwe Dollar
BRLBrazilian RealCLPChilean Peso
CNYChinese Yuan RenminbiCZKCzech Koruna
HKDHong Kong DollarHUFHungarian Forint
ILSIsraeli ShekelINRIndian Rupee
ISKIcelandic KronaKRWSouth Korean Won
KWDKuwaiti DinarMXNMexican Peso
PHPPhilippine PesoPKRPakistani Rupee
PLNPolish ZlotyRUBRussian Ruble
SARSaudi Arabian RiyalSGDSingaporean Dollar
TWDTaiwanese Dollar

DID YOU KNOW? There are 180 legal currencies in the world, as recognized by the United Nations.  That’s a lot of potential currency pairs! Unfortunately, not all of them are readable. Forex brokers tend to offer traders up to 70 currency pairs.

Aside from the three main categories of currency pairs, there are other “groups” of currencies that are thrown around in the FX world which you should be aware of.

G10 Currencies

The G10 currencies are ten of the most heavily traded currencies in the world, which are also ten of the world’s most liquid currencies.

Traders regularly buy and sell them in an open market with minimal impact on their own international exchange rates.

COUNTRYCURRENCY NAMECURRENCY CODE
United StatesdollarUSD
European UnioneuroEUR
United KingdompoundGBP
JapanyenJPY
AustraliadollarAUD
New ZealanddollarNZD
CanadadollarCAD
SwitzerlandfrancCHF
NorwaykroneNOK
SwedenkronaSEK
DenmarkkroneDKK

The Scandies

Scandinavia is a subregion in Northern Europe, with strong historical, cultural, and linguistic ties.

The term “Scandinavia” in local usage covers the three kingdoms of Denmark, Norway, and Sweden.Together, their currencies are known as the “Scandies“.

Back in the day, Denmark and Sweden established the Scandinavian Monetary Union to merge their currencies to a gold standard. Norway joined later.

This meant that these countries now had one currency, with the same monetary value, with the exception that each of these countries minted their own coins.

But then World War I happened, and the gold standard was abandoned and the Scandinavian Monetary Union disbanded.  These countries decided to keep the currency, even if the values were separate from one another. And this remains the state of things.

If you notice their currency names, they all look similar. That’s because the word “krone or krona” literally means “crown”, and the differences in spelling of the name represent the differences between the North Germanic languages.

Crown currencies. What a cool name huh?

I don’t know about you, but saying “Hook me up with some crowns yo.” sounds way cooler than “Hook me up with some dollahs yo.”

COUNTRYCURRENCY NAMECURRENCY CODE
DenmarkkroneDKK
SwedenkronaSEK
NorwaykroneNOK

SEK and NOK also have cool nicknames, “Stockie” and “Nokie“.

So when paired with the U.S. dollar,  USD/SEK is read “dollar stockie”  and USD/NOK is read “dollar nockie”.

CEE Currencies

CEE” stands for Central and Eastern Europe.

Central and Eastern Europe is a term encompassing the countries in Central Europe,  the Baltics, Eastern Europe, and Southeast Europe (the Balkans), usually meaning former communist states from the Eastern Bloc (Warsaw Pact) in Europe.

Central and Eastern European Countries (CEECs) is an OECD term for the group of countries comprising Albania, Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, the Slovak Republic, Slovenia, and the three Baltic States: Estonia, Latvia, and Lithuania.

Regarding the FX market, there are four main CEE currencies to be aware of.

COUNTRYCURRENCY NAMECURRENCY CODE
HungaryforintHUF
Czech RepublickorunaCZK
PolandzlotyPLN
RomanialeuRON

BRIICS

BRIICS is the acronym coined for the association of five major emerging national economies: Brazil, Russia, India, Indonesia, China, and South Africa.

Originally the first four were grouped as “BRIC” (or “the BRICs”). BRICs was a term created by Goldman Sachs to name today’s new high-growth emerging economies.

BRIICS is the term created by the OECD, when it added Indonesia and South Africa.

COUNTRYCURRENCY NAMECURRENCY CODE
BrazilrealBRL
RussiarubleRUB
IndiarupeeINR
IndonesiarupiahIDR
ChinayuanCNY
South AfricarandZAR

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