Understanding Forex Market Basics Is Key to Sound Trading

The foreign exchange market (forex) is one of the most stirring, swift and largest markets worldwide. The daily average forex market, also referred to as FX, experiences trading volumes of approximately $3.98 trillion.



With the introduction of the Internet, the FX market is now accessible to everyone with internet access. A currency trading platform is no longer restricted to large financial institutions.



Forex Currency Prices

Wide liquidity and the availability of high leverage have been key factors in expanding the forex market’s growth and trading volume.



Forex trading positions can be opened and closed for differing amounts of time. They can open or close in a matter of minutes or stay open for months at a time. Prices of currency are driven by the basic principles of supply and demand on the forex market.



As a result, the objective trends of supply and demand cannot be manipulated or influenced by large corporations, since the immense size of the market does not enable users to move prices at will.



Understanding forex quotes and currency prices provides a basis for traders or investors that are new to or unfamiliar with the foreign exchange market.



Understanding Forex Quotes

Forex currencies are quoted in pairs. In every foreign exchange currency transaction, the forex trader is simultaneously buying one currency and selling another.



An example of a foreign exchange rate for the U.S. dollar versus the British pound would be: USD (Base currency)/GBP (Quote currency) = 1.63469



When purchasing a forex currency pair, the rate of exchange is indicated by how much the customer is paying in units of the quoted currency to purchase one unit of the base currency. Therefore, in the above example, for $1 US, the trader would have to pay out 1.63469 British pounds.



When someone is selling, the exchange rate informs them the number of units of the quoted currency pair they obtain by selling one unit of the base currency. As in the example, when $1 US is sold, the forex trader receives 1.63469 British pounds.



The base currency is the "basis" for forex trading. If someone purchases GBP/EUR, they are purchasing the base currency and selling the quote currency.



It is important for customers of brokerage companies to understand the main concepts of FX trading in order to successfully and completely participate in the forex market with a forex trading account. Without this knowledge and understanding, it would be difficult to make a sound investment or transaction.



Author is a freelance copywriter who writes about forex and currency trading. This material is considered a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. This material has not been prepared in accordance with legal requirements promoting the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Any opinions made may be personal to the author and may not reflect the opinions of FxPro.