FOREX (FX, foreign exchange, currency trading) is by far, the largest trading market in the world, in terms of cash value traded. Every day, 24 hours a day (except for weekends) currency are traded around the globe by banks, government agencies, multi national corporations, financial institutions, and currency speculators. Thanks to the PC and internet, the once very exclusive elite trading of FOREX can now be accessed and participated by private investors. Like you and me.

The most basic definition of FOREX would be “The simultaneous buying of one currency while selling the other”. For this, currency is always traded in pair of XXX/YYY. XXX and YYY represent the ISO 4217 international three-letter code of the currency, like USD for US Dollar and AUD for Australian Dollar.

The first currency in the pair (XXX) is called the base currency and the second (YYY) is called the counter currency. Usually the base currency would be the relatively stronger currency, most of the time the USD (with the exception of EUR and GBP).

The most commonly traded currencies are the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.

So basically the currency pair is quoted as 1 unit of the base currency/ the exchange rate of the counter currency. For example: If EUR/USD is trading at 1.2762, what it means is that you can buy 1EUR with 1.2762USD.

How FOREX works: Let say you expect a currency (say YYY) to increase relative to USD, You buy the currency (while simultaneously selling the USD). Now, when the said currency does increases, you sell the currency to close your position and take profit. Very easy, buy low, sell high.

p/s – My next article would be on terms used in FOREX trading, and what they meant. So, Stay Tuned!!♥