If you are interested in financial and investment markets, you must have heard the name Forex or foreign exchange market many times. In fact, Forex is a decentralized market where millions of people around the world trade daily.
The main asset traded in forex is the foreign currencies of different countries, whose price changes relative to each other provide trading opportunities for investors.
However, it is not only foreign currencies that are traded in forex. In this market, there are other tools that investors can use to make money from their price fluctuations.
To get more information in this field as well as to get to know the foreign exchange market better, be sure to stay with us until the end to see what is really being traded in the forex market.
In this article we will cover:
- What is traded in forex?
- Currency Pairs
- Stocks
- Indices
- Bonds
- Digital currencies (Cryptocurrencies)
- Commodity
What is traded in forex?
Forex is for converting one country’s currency into another country’s currency, and for that reason, currency pairs are the main assets traded in it. However, other assets such as bonds, stocks and indices are also traded in forex.
The word “Forex”, which is called the foreign currency exchange market, is an abbreviation of the term “Foreign Exchange”. Forex is also referred to as FX, and perhaps the simplest definition for it is “a place to convert one currency into another”.
As you know, the value of currencies in different countries is not the same.
The ratio of this change is constantly fluctuating and sometimes it becomes more and sometimes less. For this reason, many investors try to use these fluctuations and achieve profit.
So if we want to answer the question “What is traded in Forex?” Let’s give a simple and general answer, the answer will be “money”.
This work is done in the form of markets where two currencies of two different countries face each other. For example, the Euro vs. Dollar market, also known as the EUR/USD (EUR/USD) currency pair, is the largest forex trading market.
In this market, the value of the euro is measured against the value of the dollar, and people can use its fluctuations and increase their capital.
An investor and trader who, according to his analysis, sees the economic conditions of European countries as better and believes that the current situation of this union is better than the US dollar, can make a profit by buying at the current price of this currency pair and selling it at higher prices.
In such a situation, you actually buy euros by selling your dollar, which is called the first currency of the base currency and the second currency of the counter currency.
But this is not the whole story and by using different brokerages and brokers, you can also trade other trading instruments in forex. Let’s talk about each of these markets in more detail below.
Currency Pairs
the main tradable assets in forex are currency pairs of different countries. Currency pairs can be divided into three major, minor and exotic categories.
Some of the currency pairs that can be traded in Forex are currency pairs that have a large volume of transactions. In fact, these currency pairs belong to the world’s largest economies, and for this reason, the majority of investors and traders prefer to trade in them.
Major forex currency pairs include EUR/USD (Euro to Dollar), GBP/USD (Pound to Dollar), USD/JPY (Dollar to Japanese Yen), USD/CHF (Dollar to Swiss Franc), USD/CAD (US Dollar to Canadian dollar), AUD/USD (Australian dollar to US dollar) and NZD/USD (New Zealand dollar to US dollar). As you can see, the fixed side of the main currency pairs is the US dollar.
In between, there are some currency pairs such as EUR/GBP (Euro to Pound), GBP/JPY (Pound to Yen) and EUR/CHF (Euro to Swiss Franc), none of the two constituent currencies of which is the US dollar. We call such currency pairs sub-currency pairs.
The third type of currency pairs, which are called unusual currency pairs, are the currencies of developing countries facing each other. For example, the EUR/TRY (Euro to Turkish Lira) currency pair is considered an unusual currency pair, which is less liquid than the main and secondary currency pairs.
Stocks
You can easily buy and sell shares of prominent companies such as Apple, Amazon, Tesla and Google and profit from their fluctuations.
Stock trading in Forex is done in the form of CFD contracts. In fact, you only benefit from changes in the share price of each company and do not own the shares.
AAPL (Apple), MSFT (Microsoft), GOOG (Google) and AMZN (Amazon) can be mentioned among the most important stock symbols that can be traded in the forex market.
Indices
In forex, it is also possible to trade on indices. An index is a collection of stocks of different companies that is usually used to evaluate the performance of a market or asset.
In other words, an index shows the value of a set of listed companies of a country or the value of a currency against the currency of other countries.
For example, consider the symbol NI225, which is the symbol for the Nikkei 225 index. This index shows the performance of the top 225 Japanese companies and is used to evaluate the overall performance of the Japanese stock market.
Other prominent market indices that have the largest trading volumes include the S&P 500 index (the performance of the 500 largest companies on the American Stock Exchange) and the Dow Jones Industrial Average (the performance of the top 30 companies on the American Stock Exchange).
In addition, there are other types of indices that measure the performance of some countries’ currencies against other currencies. These indices are called currency-related indices, and the most important one is the dollar index with the symbol DXY.
Finally, each of these indicators is assigned a number that increases and decreases every day based on various factors. Therefore, investors and traders can use these price fluctuations and profit from both the growth of these indices and their decline.
Bonds
Bonds can also be bought and sold in Forex. But what is meant by bonds? In fact, bonds are a set of documents that private companies and various governments sell to investors.
Thus, these private companies and governments provide the capital needed for their activities and undertake to repurchase the sold bonds from investors in the future.
In this way, companies and governments take loans from people, and after a certain period of time, investors get back both the principal of their capital and receive the additional amount as interest.
One of the most important bonds traded in the forex market is US10Y, which belongs to the 10-year US government bonds. Similarly, the symbol CA10Y corresponds to the 10-year Canadian bond and GB10Y corresponds to the 10-year British bond.
Digital currencies (Cryptocurrencies)
Although digital currencies are traded separately in dedicated digital currency exchanges, it is also possible to buy and sell them in the forex market.
Trading of cryptocurrencies in the forex market is also done in the form of CFDs, and for this reason, you can earn money from both the decrease in the price of cryptocurrencies and their increase.
For example, if you think that a digital currency such as “Bitcoin” with the symbol BTC will start its upward movement soon, you can open a long or buy trading position.
If, according to your analysis, you believe that Bitcoin is on the verge of falling, you can also profit from the decrease in the price of this popular cryptocurrency by opening a short position.
In addition to Bitcoin, it is possible to trade other cryptocurrencies such as “Ethereum” with the symbol ETH, “Litecoin” with the symbol LTC and “Ripple” with the symbol XRP.
Commodity
In forex, you can benefit from price fluctuations of various commodities such as oil, wheat, gold, etc.
Gold is one of the most traded forex commodities known by the symbol XAU. At the time of writing this article, each ounce of gold is traded at $1,835 in the forex market, which has decreased by about one percent compared to the previous day.
This valuable asset can also be classified as part of the category of metals that can be traded in Forex. In addition to gold, it is also possible to trade on other metals such as silver, copper and palladium.
Another category of commodities traded in forex is energy, the most important of which are Brent crude oil, OPEC oil and natural gas.
Other products such as coffee, sugar, cocoa, corn, wheat and cotton can also be traded in forex.
The main assets that are traded in forex are the currency pairs of different countries, among which the EUR/USD currency pair is bought and sold more than any other instrument.
However, other assets such as shares of foreign companies, bonds, commodities such as wheat, gold and oil, indices and even digital currencies can also be traded in forex.
Of course, keep in mind that forex tradable assets depend on your broker and not all brokers support all the tools mentioned in this article.
For example, it may not be possible to buy and sell Bitcoin and other digital currencies in your broker, but you can trade other assets such as oil and stocks along with currency pairs.
Many people who have invested mostly in the domestic markets of the country and now want to enter the forex market usually face an important question.
What is traded in forex? In this article, we tried to answer this important question in full detail, and we hope that the said information was useful to you.
