The simple answer is MONEY. Specifically, currencies.
Because you’re not buying anything physical, forex trading can be confusing so we’ll use a simple analogy to help explain.
Think of buying a currency as buying a share in a particular country, kinda like buying shares in a company.
The price of the currency is usually a direct reflection of the market’s opinion on the current and future health of its respective economy.
In forex trading, when you buy, say, the Japanese yen, you are basically buying a “share” in the Japanese economy.
You are betting that the Japanese economy is doing well, and will even get better as time goes.
Once you sell those “shares” back to the market, hopefully, you will end up with a profit.
In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country’s economy, compared to other economies.
While there are potentially lots of currencies you can trade, as a new forex trader, you will probably start trading with the “major currencies“.
They’re called “major currencies” because they’re the most heavily traded currencies and represent some of the world’s largest economies.
Forex traders differ on what they consider as “major currencies”.
The uptight ones who probably got straight A’s and followed all the rules as children only consider USD, EUR, JPY, GBP, and CHF as major currencies.
Then they label AUD, NZD, and CAD as “commodity currencies“.
We will consider all eight currencies as the “majors”.
Below, we list them by their symbol, country where they’re used, currency name, and nickname.
Currency symbols always have three letters, where the first two letters identify the name of the country and the third letter identifies the name of that country’s currency, usually the first letter of the currency’s name.
The currencies included in the chart above are called the “majors” because they are the most widely traded ones.