What is the forex market?
Foreign exchange (also known as forex or FX) refers to the global, over-the-counter market (OTC) where traders, investors, institutions and banks, exchange speculate on, buy and sell world currencies.
Trading is conducted over the ‘interbank market’, an online channel through which currencies are traded 24 hours a day, five days a week. Forex is one of the largest trading markets, with a global daily turnover estimated to exceed US$5 trillion.
Understanding Currency Pairs
All transactions made on the forex market involve the simultaneous purchasing and selling of two currencies.
These are called ‘currency pairs’, and include a base currency and a quote currency. The display below shows the forex pair EUR/USD (Euro/US Dollar), one of the most common currency pairs used on the forex market.
Bid Price
Sell 1 Euro for 1.0916 US Dollars
1.0916
Ask Price
Buy 1 Euro for 1.0918 US Dollars
1.0918
Spread
Ask Price – Bid Price
1.0918 – 1.0916 = 0.0002 (2 pips)
pips
Ask Price – Bid Price
1.0918 – 1.0916 = 0.0002 (2 pips)