are kind of elephants’ skin. Just kidding! The answer is MONEY! What else can it be? You already know that the spot market is the largest and preferred one for trading.
This is due to the fact that the spot market is the “underlying” real asset that the forwards and futures markets are based on. However, let’s not forget that we are not buying anything physical through our trading. When we think of buying a currency, we could assume that we are buying a share of one country’s economy.
That price is determined by the supply and the demand.
The factors that can influence the price are the current interest rates, the economic performance of a country, the ongoing political situation (both locally and internationally).
For example, you will buy Australian dollars, because you are assuming that its price will go higher at some point since its economy is doing well.
The opposite scenario would have been:
- Buying British pound 4 years ago right before Brexit referendum occurred
- Thinking that its price will get as high as it was before just in a couple of months
There are only two explanations if you had done that.
A. You had suicidal thoughts.
B. You hadn’t read our guide on what and how can influence the exchange rates
This is the perception of the future performance of one currency against another.
There are as many currencies as the countries the world has. But there are a few ones that are traded the most.
They are called MAJOR currencies.
As you can see these are the currencies of the most economically stable countries.
USD, EUR, JPY, GBP, and CHF represent those major currencies.
There are another three currencies( AUD, NZD, and CAD) which are called “commodity currencies“.
Why don’t we keep it simple and just call all eight currencies as the major ones?
Each one of them has its symbol, country where it is used, currency name, and cool nicknames.
You can see the characteristics below.
Currency symbols always have three letters, where the first two letters identify the name of the country and the third letter identifies the name of that country’s currency, usually the first letter of the currency’s name.
There is an organisation called the International Organization for Standardization (ISO), which has established the three-letter codes for currencies that we use today.
Take for instance CAD, which is referring to Canadian Dollar.
CA stands for CANADA , while D stands for DOLLAR.
Don’t be surprised if you hear somebody saying: When do you plan to give me my Aussies back!!!
Yes, these are not fictional characters. Aussie is the nickname used for the Australian dollar.
Here is a list with nicknames of some of the currencies, if you don’t want to look dumb when you hear somebody say it while buying a hotdog on the street or using trading jargons.