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What do we trade in forex?

Forex or foreign exchange market is the largest financial market in the world, with an estimated daily trading volume of $5.3 trillion. Forex trading involves the buying and selling of currencies with the aim of making profits from the fluctuations in their exchange rates. The forex market is highly liquid, and traders can enter and exit trades quickly, making it an attractive market for both retail and institutional traders.

So, what do we trade in forex? In forex trading, traders buy and sell currency pairs. A currency pair is the exchange rate between two currencies, such as the US dollar (USD) and the euro (EUR). The first currency in the pair is called the base currency, and the second currency is called the quote currency. The exchange rate between the two currencies represents how much of the quote currency is needed to buy one unit of the base currency.

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For example, if the EUR/USD exchange rate is 1.2000, it means that one euro is worth 1.2000 US dollars. In this case, the EUR is the base currency, and the USD is the quote currency. If a trader believes that the euro will appreciate against the dollar, they can buy the EUR/USD pair. If they believe that the dollar will appreciate against the euro, they can sell the EUR/USD pair.

Other popular currency pairs that are traded in the forex market include:

– USD/JPY (US dollar/Japanese yen)

– GBP/USD (British pound/US dollar)

– USD/CHF (US dollar/Swiss franc)

– AUD/USD (Australian dollar/US dollar)

– USD/CAD (US dollar/Canadian dollar)

In addition to currency pairs, forex traders can also trade other financial instruments such as commodities, indices, and cryptocurrencies. However, these instruments are usually traded as contracts for difference (CFDs), which means that traders do not own the underlying asset but speculate on its price movements.

Commodities that are commonly traded in forex include gold, silver, oil, and natural gas. These commodities are priced in US dollars, and their prices are influenced by various factors such as supply and demand, geopolitical events, and economic data releases.

Indices are also popular financial instruments in forex trading. An index is a measure of the performance of a group of stocks or other assets. Some of the popular indices that are traded in forex include the S&P 500, the Dow Jones Industrial Average, and the NASDAQ.

Cryptocurrencies have also gained popularity in the forex market in recent years. Bitcoin, the first and most well-known cryptocurrency, is now traded on many forex platforms. Other popular cryptocurrencies that are traded in forex include Ethereum, Litecoin, and Ripple.

In conclusion, forex trading involves the buying and selling of currency pairs, as well as other financial instruments such as commodities, indices, and cryptocurrencies. Traders speculate on the price movements of these assets with the aim of making profits. The forex market is highly liquid, and traders can enter and exit trades quickly, making it an attractive market for both retail and institutional traders. However, forex trading is also highly risky, and traders should have a solid understanding of the market and its risks before investing their money.

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