What Is Forex?

The foreign exchange market, Forex, is the largest and most liquid one in the world. Its average daily trading volume is approximately $5 trillion. This market is decentralized, meaning that there is no middle ground for currency exchange and thus trade is conducted over-the-counter (OTC)

Forex trading opens now for the individual retail clients: they are responsible for an estimated 30% of the daily FX volume. The FX market is open 24/5 and prices are influenced by a range of economic and geopolitical factors, which in turn trigger quick price movements and increase market volatility.

On the Forex market, the price of a national currency (for example, the US Dollar) is a reflection of how the market perceives the current and future position of the national economy.

If positive news is published, currency quotes start to rise. If you manage to open an fx trade (by clicking the Buy button on the online platform) and wait until the price increases, you can make a profit, which will immediately display on your trading account. Close the trade and fix the income. In case the forecast was not right and the chart went down, your trade will be closed in the red and you can make a loss.

Open an online forex trading and CFD platform – for example, MT5 – right in the browser. The currency pairs that you could see there are displaying the value of one currency in units of another. It reflects the state of economies of the two countries in relation to each other.

The core of fx currency trading is the following: buying one currency (it’s first in the pair), you simultaneously sell another (second one). Just like the bank exchange office, here you buy euros on dollars (or other currencies). The rate at which you purchased the European currency is an example of the EUR/USD quotes.

To understand this, look the example below (how many US dollars euro costs): EUR/USD = 1.12739

The course of EUR/USD in forex trading shows that 1 EUR is equal to 1.12739 USD. This means that you need 1.12739 US dollars to buy 1 euro, or that you can get 1.12739 USD when you sell 1 EUR.

Euro, in this case, is the base currency (the price of which we want to determine), and the dollar is the counter currency (in which the price is expressed). Now you should always keep in mind that the base currency is the basis for buying or selling.

So, when you click Buy, you open trade to buy EUR/USD; when you click Close, you finish the trade (as if selling EUR/USD, but you really don’t need to do this). It turns out that each of your transactions is a link in an endless chain of purchases and sales. Someone has sold you and you have bought and closed the trade (sold the asset). Someone another has bought it at that moment - and so on.

We remind you that you simply join price changes as a speculator and do not physically acquire bundles of money.