In the Forex Market, one currency is exchanged for another. This is the reason why Forex is quoted in currency pairs. The three-letter code of all currencies is set out by the International Standards Organization. In most cases, the first two letters are the same as the country name, and where possible the third letter corresponds to the first letter of the currency name.
The eight most commonly traded currencies are: USD (U.S. dollar), EUR (euro), GBP (Great British Pound), AUD (Australian dollar), JPY (Japanese Yen), CHF (Swiss franc), CAD (Canadian dollar), NZD (New Zealand dollar).
These eight currencies form seven major currency pairs which account for over 85% of the daily traded volume in the market:
- EUR/USD: euro versus U.S. dollar
- USD/JPY: U.S. dollar versus Japanese yen
- GBP/USD: Great Britain pound versus U.S. dollar
- AUD/USD: Australian dollar versus U.S. dollar
- USD/CHF: U.S. dollar versus the Swiss franc
- USD/CAD: U.S. dollar versus the Canadian dollar
- NZD/USD: New Zealand dollar versus U.S. dollar
Aside from these major pairs, there are the so-called exotic currencies. They are characterized by relatively low trading volumes, high volatility and high spreads. Trading such pairs carry higher degrees of risk, and comparably higher possible profits.
The list of exotic currencies includes CZK (Czech Koruna), MXN (Mexican Peso), PLN (Polish Zloty), TRY (Turkish Lira), RUB (Russian Ruble) and others.
The high price volatility of the exotic currencies can definitely be exploited for profits, but it requires more skill and experience than the majors.
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