What is a trading object in the FOREX market?

Ok, troops, who can answer me this one simple question? Well, we’ve just investigated that the FOREX is a money market, so I assume that the trading object of the market is MONEY.

But I do not quite understand one thing. The point is that if we want to buy something, we should pay money for it. And here, on FOREX, we should pay money for purchasing the same money. I’m confused a bit.

Well, I’ll try to help you. You just have said: “we should pay money for purchasing the same money”. But this is not quite correct. You pay money, yes, but purchasing not the same but different money.

You never buy on the FOREX market US dollars for US dollars, because this transaction makes no sense. It’s the same like you come to your fellow once and tell him – say, let’s change – I’ll give you 5 bucks for your 5 bucks. He may think that you’ve gone nuts. But if your friend has some different money, like Japanese Yen left over from his recent trip to Japan, this will be quite different story.

Oh! I think I’ve got it. It makes sense to trade currency of different countries with each other, but not a currency with itself, because the exchange rate of a currency with itself never changes.

Well, as you know, currency is the blood of the national economy of a country. It means that the rate of currency relative to other currencies depends on the fiscal health and perspectives of each country. This fact explains why currencies rates fluctuate all the time.

If, for example, you see that EU economy does not show growth and looks like it is bad and getting worse, but Japan’s economy is behaving well and is improving- it seems logical to buy Yen for Euros. In fact, all positive and negative national issues, not only economic but also a political, find their way into the currency value. Furthermore, not only those that have happened already, but those that were announced or are expected to happen in the future by market participants.

Absolutely the same. For example, when you’re buying Yen for US dollars, you expect that the Japanese economy will outperform US economy during the time while you intend to hold Yen position. If you are right, then you will exchange Yen for bucks after some time and make some profit, because yen rate will become higher and you will get more US dollars for the same amount of Yen during reverse exchange – when you sell the Yen for dollars. Generally speaking, the exchange rate of one currency to another reflects the relative power, condition and perspectives of that country’s economy, compared to other one.

This is simpler than you think. The point is that some currencies also have nicknames and Cable is a nickname of the GBP.