While the forex market can be a mysterious and intimidating place for the uninitiated, it doesn’t have to be. In this online guide, we pull back the curtain to show aspiring traders how the currency market works.
The global forex market is the biggest and most liquid financial market in the world. Short for foreign exchange, forex trading occurs within the international currency trading market where you buy or sell one currency for another. Central to making a profit (or loss) in forex trading is the exchange rate between the two currencies.
A currency’s value on the forex market is based on demand. How much demand there is for a Canadian dollar, Mexican peso, or South African rand will either increase or decrease its worth relative to other currencies.
One feature of international forex trading is that there is no centralized exchange. Currency trading is completed over computer networks between traders and forex brokers worldwide. People interested in forex trading can participate 24 hours a day, five days per week. Because of the high volume, currency price quotes regularly change — sometimes in mere seconds.
Currencies are always traded in pairs. If you are trading Australian dollars for euros, you have two currencies in the transaction, and you can see the cost of one currency compared to the other. For every pair, there is a market price attached. This refers to how much of the second currency (also known as the quote currency) it takes to purchase a single unit of the first currency (also known as the base currency). If you as a trader see a quote like GBPUSD 1.77351, for example, you would know that it costs 1.77351 U.S. dollars to purchase one British pound.
The forex market uses symbols for currencies. Common currencies include:
The most commonly traded pairs, also known as major pairs, involve the US dollar and other common currencies. These include:
Everyone from banks, to corporations, to fund managers, to those with no previous financial trading background are involved in forex trading. Because the forex market is accessible online and because retail forex brokers (like Exness) make it possible to trade on virtually any budget, growing numbers of individual investors are getting involved in the forex market.