What is a Fiat Currency?
A fiat currency is a government-issued currency that is not backed by a physical commodity, such as gold or silver. Instead, it derives its value from the government’s authority and people’s faith in it. In forex trading, fiat currencies like the US Dollar, Euro, and Japanese Yen are the most commonly traded currencies.
The exchange rates of fiat currencies fluctuate based on various factors such as economic indicators, political events, and market sentiment.
As such, forex traders often buy and sell fiat currencies to profit from these fluctuations.
Example of a Fiat Currency
An example of a fiat currency in forex is the United States Dollar (USD). The USD is a widely accepted form of currency in international trade and is used as a benchmark for many currency pairs in the forex market.
It is considered a fiat currency because its value is not backed by a physical commodity, such as gold or silver, but rather by the trust and confidence of its users. The USD is one of the most actively traded currencies in the forex market and is often used as a base or quote currency in currency pairs.