What are you really selling or buying in the currency market?

You are buying and selling money, or more specifically, a nation’s currency. Generally, in the forex market, it helps to think of money as a commodity. When you buy a currency you hope that its value will strengthen compared to the currency that you are selling. If you are selling, you are betting that the currency you are selling will weaken compared to the currency you look to buy. Like any other commodity, currencies are displayed in quotes based on the current rate in the market, known as the spot rate, and traded in currency pairs; like the U.S. dollar against the Canadian dollar (USD/CAD) or the US dollar and Japanese yen (USD/JPY).

Also, although you are buying another country's currency, you are not buying anything ‘physical', and thus no physical exchange of money ever takes place. This can be confusing, but think of it like buying shares of a publicly traded company where everything is done electronically inside your trading account. But unlike the stock market, the forex market doesn't have a central exchange like the New York Stock Exchange for instance. Instead the forex market is an interbank market, which means it's all connected together in a network of banks and institutions.

You can also think of buying currencies as buying shares in a country, you are betting on the performance of a particular country's economy. You'll learn more about reading a currency quote and the economics that move currency rates in the upcoming Introduction to forex section.

Currency Quotes

Related Articles
  1. Trading

    The Forex Market: Who Trades Currency And Why

    The forex market has a lot of unique attributes that may come as a surprise for new traders.
  2. Trading

    Top 5 Reasons To Invest In Currencies

    Here's why you should get into the forex market.
  3. Trading

    The 6 Most-Traded Currencies And Why They're So Popular

    Every currency has specific features that affect its underlying value and price movements in the forex market.
  4. Trading

    How To Trade Forex Right Now

    With the expected continued world volatility in the near future, there is a lot of money to be made in the forex market. How can you make the most of it?
  5. Trading

    How Do You Make Money Trading Money?

    Making money in the foreign exchange market is a speculative process. You are betting that the value of one currency will increase relative to another.
  6. Trading

    Top 5 Forex Risks Traders Should Consider

    With a long list of risks, losses associated with foreign exchange trading may be greater than initially expected. Here are the top 5 forex risks to avoid.
  7. Trading

    Forex Trading: A Beginner’s Guide

    As businesses continue to expand to markets all over the globe, the need to complete transactions in other countries’ currencies is only going to grow.
  8. Trading

    4 Of The Most Popular Traded Currencies

    Every day, trillions of dollars trade in the forex market. Here are a few of the most popular currencies, and some characteristics for each.
Frequently Asked Questions
  1. How did the ABX index behave during the 2008 subprime mortgage crisis?

    Read about the disastrous performance of the various ABX indexes in the subprime mortgage crisis of 2008 during the middle ...
  2. How did moral hazard contribute to the 2008 financial crisis?

    Learn about moral hazard, how it can affect outcomes and how it contributed to the conditions that led to the 2008 financial ...
  3. Which mutual funds made money in 2008?

    Read about the only mutual fund that turned a profit in 2008. Learn about risk-averse investment strategies and the financial ...
  4. Were Collateralized Debt Obligations (CDO) Responsible for the 2008 Financial Crisis?

    Collateralized debt obligations are exotic financial instruments that can be difficult to understand, Learn the role they ...
Trading Center