What Is Forex Trading?
Forex trading involves buying one currency while simultaneously selling another. Currencies are traded in pairs through a forex broker or CFD provider, with one currency quoted in relation to another (e.g., EUR/USD or GBP/JPY).
Think of each pair as a tug of war between two economies—whichever currency is stronger determines the direction of the exchange rate.
Types of Currency Pairs
Currency pairs fall into three main categories:
- Majors: Include the U.S. dollar and are the most liquid (e.g., EUR/USD, USD/JPY).
- Crosses: Pairs that exclude the USD but involve other major currencies (e.g., EUR/GBP, GBP/JPY).
- Exotics: A major currency paired with one from an emerging market (e.g., USD/BRL, USD/THB).
Major Currency Pairs
These are the most traded and liquid pairs:
| Pair | Countries Involved | Nickname |
|---|---|---|
| EUR/USD | Eurozone / U.S. | Euro Dollar |
| USD/JPY | U.S. / Japan | Dollar Yen |
| GBP/USD | U.K. / U.S. | Pound Dollar |
| USD/CHF | U.S. / Switzerland | Dollar Swissy |
| USD/CAD | U.S. / Canada | Dollar Loonie |
| AUD/USD | Australia / U.S. | Aussie Dollar |
| NZD/USD | New Zealand / U.S. | Kiwi Dollar |
Majors offer tight spreads and high liquidity, making them ideal for new traders.
Cross-Currency (Minor) Pairs
These don’t include the USD but involve other major currencies like EUR, JPY, and GBP.
Examples:
- EUR/GBP (Euro Pound)
- GBP/JPY (Pound Yen / Guppy)
- EUR/JPY (Euro Yen / Yuppy)
- AUD/CHF (Aussie Swissy)
Crosses offer plenty of trading opportunities but can be slightly less liquid than majors.
Exotic Currency Pairs
Exotics involve one major and one emerging market currency. Examples include:
- USD/BRL (Dollar Real – Brazil)
- USD/TRY (Dollar Lira – Turkey)
- USD/ZAR (Dollar Rand – South Africa)
- USD/PLN (Dollar Zloty – Poland)
They are less liquid and more volatile, with wider spreads and higher sensitivity to political and economic events.
Other Currency Groups
- G10 Currencies: The most traded and liquid currencies globally (e.g., USD, EUR, JPY, GBP, AUD).
- Scandies: Scandinavian currencies like SEK (Swedish Krona), NOK (Norwegian Krone), and DKK (Danish Krone).
- CEE Currencies: Central and Eastern European currencies such as PLN (Polish Zloty) and HUF (Hungarian Forint).
- BRIICS: Emerging market currencies from Brazil, Russia, India, Indonesia, China, and South Africa.
- BRICS+: Expanded group including Egypt, Iran, UAE, and more—growing in global economic influence.
Quick Recap
- Forex trading = buying one currency and selling another.
- Currency pairs = base currency vs. quote currency.
- Majors = most liquid and widely traded.
- Crosses = major currencies excluding USD.
- Exotics = one major + one emerging market currency.
- Over 180 currencies exist, but not all are tradable.
