Within the forex online trading marketplace, no actual items are exchanged, which may be confusing for some.
Whenever you purchase a stock from a particular business, you are buying a piece of the company. Similarly, whenever you buy a specific currency, you are purchasing a part of the currency’s country. When you buy US dollars, for example, you are actually purchasing a part of the United States.
In simple terms, the value of a country’s currency echoes what the marketplace believes to be the current and future health of its economy. For instance, if you purchase British Pound Sterling (GBP), you are making a guess that the economy in Britain is in sound condition and will remain so for the foreseeable future. Therefore, you hope that in the future, you will be able to sell back the currency for a profit.
Generally, the rate of exchange of a country’s currency against others reflects that country’s financial health in comparison to the economies of other countries.
The main currencies involved in forex are USD (United States Dollar), GBP (Great Britain Pound), EUR (Euro Zone Euro), JPY (Japanese Yen), CHF (Swss Franc), CAD (Canadian Dollar), AUD (Australian Dollar), NZD (New Zealand Dollar).
By convention, the currency symbols have three letters. The initial two letters signify the nation and the last letter represents the name of the currency. Therefore, the pound sterling is represented as GBP where GB is Great Britain and P is pound sterling.