What is a Currency in Forex Trading?

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Contributor, Benzinga
February 14, 2023

Currency is exchanged between people every day, but what is currency, and how does it work?

A currency is a medium of exchange issued by a government and accepted as a form of payment. 

Disclosure: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Understanding Currency

The U.S. dollar (USD), the Canadian dollar (CAD), the Japanese yen (JPY) and the Great British pound (GBP) are forms of currency used in their respective countries. The value of these currencies changes against the value of others. Modern currencies are distributed in the form of coins or paper, a tangible source based upon an intangible system.

Money vs. Currency

Money and currency have a close relationship, but they differ in fundamental ways.

Money refers to an intangible system of value that allows for the exchange of products and services. Currency is one form of money, such as the euro or the dollar. 

The most common use of money is in payment transactions for goods and services. Money maintains a value and is used in the majority of exchanges. Money is also a way to value items even as their price changes over time. What you purchase with money for a specific price today may not be the exact same price in one year’s time.

However, money is only viable if it is accepted and trusted by the masses. To achieve and maintain value, money must be durable, recognized, and able to hold its value. 

Currency is a type of money used globally.

What Are the Types of Currency?

Currencies are created and distributed by individual countries.

The U.S. dollar, a type of currency issued in paper form, is the world's most traded currency. It is considered to be the world's primary reserve currency held by banks for investments and transactions.

Other currencies include the euro, Swiss franc and the GBP. The pound and the franc are issued by their own countries; however, the euro is adopted by most countries operating in the European Union. 

How Does Currency Trading Work?

The value of currencies fluctuates in relation to the value of other currencies, called the exchange rate. For example, you can find the exchange rates for GBP/USD, AUD/JPY or CAD/EUR. 


The rate fluctuates based on technical and fundamental factors, and traders use this information to make buying and selling decisions. Fundamental analysis, such as political events, economic data or general news, can influence rates. Technical analysis is used to identify patterns or opportunities in trading these currencies.

Millions of people and entities trade currencies, making up the highly volatile 24/7 foreign exchange market. 

Is Currency Trading Profitable?

Currency trading can be profitable, but getting to the point of being consistently profitable is not easy. Anyone can be profitable, but not everyone is. The process is challenging and requires hours of research, successful planning and trial and error. Success in currency trading is achievable, but trading the forex market doesn’t guarantee profit.

Successful trading plans are unique to the individual; however, traders identify a few standard variables common to successful trading plans. For example, two traders may be trading a particular price action pattern, such as the bullish flag pattern on the EUR/USD chart. One may prefer to trade this pattern during the European session on the five-minute chart, while the other tends to trade it during the U.S. session on the hourly chart.

Example of Currency Trading

Successful currency trading has many faces. One example of currency trading could occur in the GBP/USD, a highly volatile pair. You may decide to buy GBP and sell USD if you think the GBP/USD will go up. 

When trading in the forex market, set entry and exit points to risk. For example, after going long the GBP/USD, you could be stopped out (via your inserted stop-loss level) and lose the trade, or it could move higher and hit your preset take-profit level. 

Is Currency Trading Worth It?

Currency trading requires years of practice to achieve consistent profitability, but it is an attainable goal for a small percentage of people. Many traders lose money, and currency trading is more complex than it may seem.

Currency trading may not work for you initially, but constant learning and research are critical to the process of becoming a consistently profitable forex trader.

Start Trading Currency with Benzinga's Favorite Brokers 

If you want to get started trading currencies, you will need to open a brokerage account. Below is a comparison of some of the best online forex brokers.

  • Plus500 Forex
    Best For:
    Forex and CFD Trading for Mobile Users
    securely through Plus500 Forex's website
  • Forex.com
    Best For:
    Fast Execution and High-Volume Traders in the U.S
    securely through Forex.com's website

    CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% to 77.7% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

    The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account

  • IG Markets
    Best For:
    Fast Execution for U.S. Traders
    securely through IG Markets's website

    Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

  • City Index
    Best For:
    International Forex and CFD Traders
    securely through City Index's website

    CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

  • AvaTrade
    Best For:
    Non U.S. Forex & CFD Traders
    securely through AvaTrade's website

Frequently Asked Questions

Q

What does currency mean in forex?

A

Currency in forex is the instrument that is bought or sold. However, in forex, trades come as a pair, and the purchase of one currency leads to the sale of another.

Q

How does currency affect trade?

A

Currency exchanges can cause appreciation or depreciation, thus increasing or decreasing the value of goods and exchanges.

Q

Does forex affect currency value?

A

The forex market plays a key role in a currency’s value as individuals are buying and selling currencies each and every day, impacting the value and price of one currency against another.

Get a Forex Pro on Your Side

FOREX.com, registered with the Commodity Futures Trading Commission (CFTC), lets you trade a wide range of forex markets with low pricing and fast, quality execution on every trade. 

You can also tap into:

  • EUR/USD as low as 0.2 with fixed $5 commissions per 100,000
  • Powerful, purpose-built currency trading platforms
  • Monthly cash rebates of up to $9 per million dollars traded with FOREX.com’s Active Trader Program

Learn more about FOREX.com’s low pricing and how you can get started trading with FOREX.com.

About Sam Boughedda, Stock Market Analyst

He is an expert in the following spaces: stock market news writing, analysis, and research.