Forex Trading 101: Major Currency Pairs, Most Traded Currencies, & More

What is Forex Trading

What is Forex Currency Trading?

With the Federal Reserve off to the printing presses, many wonder how healthy is the US Dollar?  With the volatility of the US Dollar, More and more people are looking into trading foreign currencies.  That is where the Forex market comes into play.

The foreign exchange market (forex) is the market where world currencies are traded 24 hours a day. This market can serve individuals and businesses (converting currencies) and investors (trading currencies).

The Forex market acts like the stock market except instead of trading stocks, you are trading various currencies from around the globe, everything from Japanese Yen to Swiss Francs to Aussie Dollars.

Buying a currency is similar to buying shares in a particular country. The price of the currency you buy is based on what the market thinks about the current and future financial health of that country.

When you buy a currency like the Japanese Yen, you are essentially invested in the Japanese economy.  You will profit if  you sell after the Japanese economy does well and its currency increases in value versus other currencies.  As a rule of thumb, the exchange rate of one currency versus another is a direct reflection of the condition of that country’s economy compared to other countries’ economies.

So you want to be a currency trader?

Forex trading involves the simultaneous buying of one currency and selling another currency. Currencies are traded through a broker or dealer, and are traded in pairs.  When you trade in the forex market, you buy or sell in currency pairs.  Here are the major pairs:

Major Currency Pairs

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. The majors are the most liquid and widely traded currency pairs in the world.

Pair Countries Nick Name
EUR/USD Euro zone / United States “euro dollar”
USD/JPY United States / Japan “dollar yen”
GBP/USD United Kindom / United States “pound dollar”
USD/CHF United States/ Switzerland “dollar swissy”
USD/CAD United States / Canada “dollar loonie”
AUD/USD Australia / United States “aussie dollar”
NZD/USD New Zealand / United States “kiwi dollar”

The Forex market offers several appealing features:

  1. 24 Hour Trading: No opening bells or trying to squeeze in a trade before closing time.  The Forex market allows trading at all hours of the day.
  2. Large volume trading and liquidity: Over 3 trillion transactions take place every day. No need to worry about waiting to find a buyer or seller.  If you have a computer, you can place the trades yourself and get almost instantaneous trade executions.  This allows you under normal circumstances to get in and get out as desired.
  3. Narrow focus: Unlike the stock markets that trade thousands of companies each day, the Forex market deals primarily with 8 different currencies. This makes it easier for you to get a better understanding of the major forces in the market and specialize in currencies rather than worrying about thousands of different stock choices.
  4. Start with low initial capital. Many Forex trading firms allow you to start trading Forex with as little as $25!
  5. Use leverage to your favor. The Forex market doesn’t require you to make large initial investments because it allows you to use leveraged trading. Leveraged trading allows individuals the opportunity to control thousands of dollars while investing as little as $25.   This allows you to profit s or losses of 10 percent or even 100 percent or more in a single day.   Keep in mind trading does involve elements of risk and you should invest money that you can afford to lose.

8 Most Traded Currencies

Trading Forex  can be an exciting business. Currencies are always on the move and you can profit whether a currency is going up or down in value depending on how you trade. Every little shift in currency rates can translate into hundreds or thousands of dollars in profits or losses.

Here are the eight most traded currencies on the Forex market are:

  • EUR Euro
  • USD U.S. Dollar
  • GBP British Pound
  • JPY Japanese Yen
  • CAD Canadian Dollar
  • CHF Swiss Franc
  • NZD New Zealand Dollar
  • AUD Australian Dollar

Forex not for you?

Forex trading isn’t for everyone.  It does take time to learn the ins and outs of the market and get up to speed on the various trading techniques and strategies.  This type of trading is not for the faint of heart,  Another alternative to Forex trading would be to use exchange traded funds (ETFs) that have exposure to various currencies.  A quick visit to CurrencyShares will show you various exchange traded funds tied to currencies from all over the world.

Did this pique your interest?

If this type of trading piques your interest I highly suggest taking a Forex trading class such as Currency College or Forex.com.  These will provide you with the basic and advanced skills needed to get ahead in the world of Forex trading.

If you have participated in Forex trading we would love to hear your experiences thus far!

Photo by bradipo

















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7 Comments
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  1. With some Forex trading platforms, you can also trade gold. I still remember my paper gains of several hundred thousand K from when gold was $750 or so (would be much greater now)… too bad it was a $50k practice account. :P

  2. NOOOOOOO ! ! !

    This is just like gambling, day trading, commodity trading, etc.. DON’T DO IT! Especially “‘leveraged'” trading. Huge gains might be made, but there are also significant risks of huge losses – especially for those that don’t know what they are doing – and (call me “stupid” but) a Forex trading class is not enough “know-how” for me to be comfortable with this trading.

    In the book “The tortoise and the Hare”, the tortoise wins every time! Invest consistently in long term, well diversified mutual funds.. with 401(k)/403(b) matching money from your work, and/or tax FREE Roth IRA, etc… Matching money is a guaranteed return with no risk. Investing with tax FREE dollars or tax FREE gains works every time – over time. Dollar cost averaging works every time in up and down markets. Compounding of gains over time is “the eighth great wonder of the world”.

    You guys a CPF should know better!

    • @George
      If you have been around a while, you probably know that I am a huge proponent of buy and hold, long-term investing and that is how most of my money is invested. That said, some investors are wanting to take on a little more risk (for more potential reward) in part of their portfolio – and Forex is just another way to increase the risk/reward factor, just like investing in your brother-in-laws new business venture, futures, penny stocks, etc. It absolutely isn’t for everyone, but when ChristianPF readers ask about specific topics, we try to write about them.

  3. I think George makes a very good point, I would absolutely not use this as a retirement plan unless you really know how. If you are unexperienced in FOREX, like myself, and learned something from reading this, then you should definitely learn a lot more before investing any significant amount in this. I do not feel comfortable investing in my retirement using FOREX, however I am very interested in it and may spend $25 (which I can afford to lose) to learn more. The writer is not trying to hide anything, he states that there are large risks involved and you should only invest money you can afford to lose.

    @George, it seems that you are upset at CPF for allowing this post. Although I understand your concern, this is an informative post and there is nothing wrong with someone investing accordingly when they can afford to do it.

  4. Hi, I have been poking around trying to find an easier way to put the forex trading method into words so all levels of intelligence could understand about this topic. I want to add something similar to my learn to make money online site so others can benefit. Thanks so much your info has helped a lot.

  5. Managed Forex accounts are a good way for people who lead busy lives to invest in the Forex market. They can accomplish 2 main goals:
    1. to diversify their existing investment portfolio, and
    2. to potentially earn a decent income stream from currency trading

    However, there are important caveats to the above general statement:
    1. the customer should open his/her own account with a major, reputable broker company, and not send money to the “managed forex account manager”
    2. only the customer should have the ability to withdraw money from his/her broker account
    3. the customer should stay miles away from any “managed forex” promises that claim high, unrealistic, but very tempting returns. In fact being promised any kind of return may be illegal in most countries.
    4. stay away from high pressure sales pitches that make it sound easy and fool-proof; or that contain any sort of guarantee of returns. In fact, they are taking a risk in a highly volatile currency market, just as the investor is.

    When trying to find a good “managed forex account” company, look for a conservative, no nonsense, prudent, careful company that meets the precautions mentioned above.

  6. Isn’t forex a zero sum game? From what I know, almost 80% of the market is speculative, so there’s no real wealth being created?

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