Forex Trading 101

FOREX TRADING 101

Foreign exchange, commonly known as 'Forex' or 'FX', is the exchange of one currency for another at an agreed exchange price on the over-the-counter (OTC) market. All forex is quoted in terms of one currency versus another. Each currency pair has a 'base' currency and a 'counter' currency. Forex trading relates to buying and selling currencies with the purpose of making profit according to changes in their value. It is the biggest market in the world by far with a daily volume of more than $5 trillion. As such, it's easy to see how the worldwide forex market is the biggest financial market in the world. Because there is high liquidity in the forex market, it attracts many traders, beginners and experienced alike.

Commonly traded currencies in the FX market
SymbolCurrency
USDUnited States Dollar
EUREuro (EUR/USD)
JPYJapanese Yen (USD/JPY)
GBPBritish Pound or Sterling
(GBP/USD, or STG/USD)
CHFSwiss Franc (USD/CHF)
CADCanadian Dollar (USD/CAD)
AUDAustralian Dollar (AUD/USD)
NZDNew Zealand Dollar (NZD/USD)
Unlike other financial markets like the New York Stock Exchange, the forex market has neither a physical location nor a central exchange. The forex market is considered an Over-the-Counter (OTC), or “Interbank” market due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period, traded globally by a large number of individuals and organizations. Because of the differences in operating time zones around the world, the forex market allows for 24-hour trading.
When trading forex prices, you would buy a currency pair if you believed that the base currency will strengthen against the counter currency. Alternatively, you would sell a currency pair if you believed that the base currency will weaken in value against the counter currency. Forex trading allows you to speculate on price movements in the global currency market. Currency values rise and fall in relation to each other and in response to national and international economic, financial and political events. There is no difference in profit or loss potential if a currency rises or falls in relation to its trading partners so you can as readily sell a currency as you can buy it.
Regarding predicting the movements of the FX market, professional traders are usually divided into two camps, technical analysis and fundamental analysis. Both have different approaches when it comes to market analysis.