What is traded on the Forex?

MONEY, MONEY, MONEY! Forex trading is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker or dealer, and are traded in pairs; for example the Euro dollar and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY).

In general, the eight most traded currencies (in no specific order) are the U.S. dollar (USD), the Canadian dollar (CAD), the euro (EUR), the British pound (GBP), the Swiss franc (CHF), the New Zealand dollar (NZD), the Australian dollar (AUD) and the Japanese yen (JPY).

Because you're not buying anything physical, this kind of trading can be confusing. Consider buying a currency as buying a share in a particular country. When you buy Australian dollar, you are buying a share in the Australian economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Australian economy.

In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's economy, compared to the other countries' economies.