Foreign Exchange Trading
Although foreign exchange trading, or Forex, may seem complicated at first, trading in currencies can actually be a great way to diversify a portfolio quickly and easily. But what kinds of currencies can be traded? The answer is almost all of them. However, a few are more popular than others, making them easier and faster trades. Our platform allows you to:
Trade the most commonly exchanged currencies including:
- US dollar
- EU euro
- Japanese yen
- British pound
- Swiss franc
- Canadian dollar
- Australian/New Zealand dollar
- South African rand
Trade in less popular currencies including:
- Mexican pesos
- Chinese yuan
- South Korean won
- Brazilian real
Trading in Currencies
Forex trading, or trading in foreign currencies, is the buying and selling of one nation's currency in exchange for another. Trading occurs in pairs, typically involving the US dollar (USD) and another nation's currency. When the USD is not involved, the transaction is called a "cross pair."
Trades are expressed with a base currency, first followed by the quote currency, then followed by a bid (the cost of selling the base currency) and ask price (the cost of buying the target currency). So, for example, a trade involving a US dollar and a Japanese yen would look like this: USD/JPY: 1.2836 1.2839.
The difference between the bid and the ask price is called the pip spread. A pip is the smallest unit of measure for any currency, usually found at the fourth digit after the decimal point. In US dollars, each pip is the equivalent of one-hundredth of a penny. The Japanese yen offers an important exception to the pip rule in that JPY pips are the second unit after the decimal point (i.e., each pip equals one cent).
Characteristics of the Seven Most Popular Currencies
US Dollars (USD)
The US dollar is the currency of the world's largest economy, the United States of America. The value of the dollar rises and falls based on typical financial indicators like gross domestic product and financial reports like manufacturing and employment. It also moves based on announcements of the central bank. Often serving as the benchmark by which other currencies are rated, the US dollar is one of the most important currencies in the world.
European Euro (EUR)
The euro is the EU's answer to the US dollar. Serving as the currency of the European Union, a financial confederation of European nations, the euro has become the primary currency of most EU member states. Compared to its American counterpart, the euro tends to move slower, with average trading between 30-40 pips per day, and more volatile days seeing around 60 pips.
Japanese Yen (JPY)
The Japanese yen (JPY) is the currency of the geographically small, but financially powerful nation of Japan. The currency tends to have a lower interest rate than some comparable currencies, causing it to trade more erratically than the US dollar or the EU euro. Thus, while average trading days see 30-40 pips, volatile days can see as much as 150 pips.
British Pound (GBP)
The British pound tends to be a little more volatile than the European Euro. Sometimes referred to as the "pound sterling" or "cable," the British pound often has a wider trading range during a typical day, with swings that can run as wide as 100-150 pips. Much of this volatility comes from London and US trading sessions, and there tends to be much more minimal movement during Asian trading hours.
Swiss Franc (CHF)
Much like the European Euro, the Swiss franc tends to be fairly stable during individual trading sessions. Thus, average daily trading tends to run around 35 pips per day.
Canadian Dollar (CAD)
The Canadian dollar tends to run in line with other major currencies throughout the trading day. Thus, it has daily ranges of around 30-40 pips on average. Due to its vast oil reserves, the Canadian dollar tends to experience more influence from the price of crude oil than other major currencies. Because crude oil is a major export for Canada, many traders use the currency exchange to hedge risk against the current oil commodity prices, or as a means of speculation.
Australian/New Zealand Dollar (AUD/NZD)
The Australian and New Zealand dollars (AUD and NZD) have historically offered some of the highest yields of the major currencies. As a result, these currencies can be quite volatile depending on current market conditions. However, on average, the AUD and NZD both experience typical ranges of 30-40 pips, similar to other major currencies. These currencies also tend to run in line with silver and gold commodities (major exports for both nations).