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FOREX
Forex is the abbreviation of the Anglo-Saxon term Foreign Exchange (although the full name is Foreign Exchange Currency Market). In Spanish it translates as the foreign exchange market or currency market. It is also known by its acronym, FX.
Indeed, in the Forex market the changes between the different currencies are traded. But how much is a currency worth? To determine it, it must be contrasted with another, for this reason, the different currencies are listed in pairs in the Forex market (one is listed against another). Every time one currency is exchanged for another, a Forex trade is carried out.
The currencies have a certain theoretical valuation, depending on the economic conditions in which the issuing country finds itself. There are certain variables, such as inflation, interest rates or the decisions made by the central bank, that affect its valuation. But, ultimately, the market, through existing supply and demand, is what determines the exchange rate between one currency and another.
A clear example is when we change currencies at the bank to visit another country. Also, another valid example is when we buy stocks or other products that are sold in United States dollars. At this moment, although we do not know it, Forex is present.
Behind all these foreign exchange operations there is a large market. Agents of all kinds participate in it:
Brokers and financial institutions.
Central banks.
Commercial and investment banks.
Companies.
Professional traders and retailers.
What are the main currencies that are traded on Forex and what type of pairs can we find in most brokers?
Despite the fact that each independent economy, that is, each country or economic region (such as the eurozone) can have its own currency and this is exchanged in the Forex market (trading in relation to other currencies), there are four main currencies per belong to the strongest economies and be the most traded through Forex brokers:
United States dollar (USD).
Euro (EUR).
Pound sterling (GBP).
Japanese yen (JPY).
However, there are also other currencies considered "main" in the market. Together with the previous four they make up what is called the “major currencies”. These currencies are:
The Swiss franc (CHF).
Australian dollar (AUD).
Canadian dollar (CAD).
New Zealand dollar (NZD).
Thus, simply with these eight currencies it is possible to configure a large number of pairs that are traded on the market.
There are the so-called "major pairs", which put each of the main currencies against the United States dollar (since it is the queen currency, due to its strength and historical reasons):
EUR / USD (euro against US dollar).
GBP / USD (British pound against United States dollar).
USD / JPY (United States dollar against Japanese yen).
NZD / USD (New Zealand dollar against United States dollar).
CAD / USD (Canadian dollar against United States dollar).
CHF / USD (Swiss franc against United States dollar).
AUD / USD (Australian dollar against United States dollar).
In addition to these major pairs, there are others that are also very liquid and suitable for online Forex trading, these are combinations between the main currencies, without taking into account the United States dollar. They are called the "minor pairs". For instance:
EUR / GBP (euro against pound sterling).
EUR / JPY (euro against Japanese yen).
GBP / JPY (British pound against Japanese yen).
CAD / CHF (Canadian dollar against Swiss franc).
Etc.
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