Forex is the 'Foreign Exchange' marketplace for trading currencies internationally. Hence, the name. The Forex market is in fact, the largest financial network in the world accounting for daily average turnover in the trillions of dollars. Forex trading takes place through major banks, market makers, and brokerage houses around the world, and is open 24/7, five days a week. It's also a rapidly expanding market, as traders migrate over to Forex Trading and away from stocks.
In its simplest form, trading forex involves two currencies traded simultaneously, called a 'pair'. As an this example, the EUR/USD pair, trade the Euro against the US Dollar. A buyer of the pair therefore would be buying the Euro and selling the US Dollar. Forex pairs are described in the following format: XXX/YYY. The first currency in the pair; XXX, is referred to as the 'base' currency. The second symbol in the pair, YYY is the 'counter' currency. Prices will always be expressed in terms of the counter currency.
Expanding on this example, if the current price of the EUR/USD pair is shown as 1.3667, this means that 1 Euro (the base currency) equals $ 1.3667 US Dollars. Most major pairs are priced to 4 decimals, or 1/100th of one percent. The exception is the Japanese Yen pair, which trades only to 2 decimals. That's because there are typically over 100 Yen to the dollar. For instance, let's say the US Dollar is the base currency, in the USD/JPY pair where prices here are expressed in Japanese Yen. If the current price is 108.02, that means the base currency, the US Dollar, equals 108.02 Japanese Yen.
Prices in Forex are expressed in something called 'pips'. A pip is simply the minimum increment that a currency pair price can change. All that means is if the EUR/USD price changes from 1.3790 to 1.3791, the price is said to have gone up by 1 pip. Quotes on Forex pairs are on a bid-ask basis. The bid; price the market is willing to pay a seller at a point in time for a specific currency pair, the ask; the price that the market is willing to sell to a buyer in the same manner. The difference between the bid and the ask is called the bid/ask spread just like in stocks.
These Forex prices are always listed as Bid price first, Ask price second. For example, a typical EUR/USD quote could be 1.3784 Bid // 1.3787 Ask in which case the quote price would have a spread of 3 pips. The spread is how market makers are compensated, as opposed to 'commissions' paid for trading stocks or options. The spread will often vary depending on a number of factors such as: Current market conditions, specific brokers/market makers, and currency pairs being traded, just to name a few. In the EUR/USD example above, price quotes would be expressed simply as 1.3784/1.3787 or 1.3784/87.
Finally, we know that Forex trades in 'Lots' similar in a way to stocks. These lots can be delineated as types of lots including: standard, mini and micro. Standard lots trade 100,000 units of a currency pair while Mini lots trade 10,000 units and the micro lots trade 1,000 units. To illustrate this consider for example, a standard lot purchase, if the EUR/USD quote was 1.3784/1.3787, then buying this pair would mean buying 100,000 Euro dollars and selling short 137,870 US Dollars.
In its simplest form, trading forex involves two currencies traded simultaneously, called a 'pair'. As an this example, the EUR/USD pair, trade the Euro against the US Dollar. A buyer of the pair therefore would be buying the Euro and selling the US Dollar. Forex pairs are described in the following format: XXX/YYY. The first currency in the pair; XXX, is referred to as the 'base' currency. The second symbol in the pair, YYY is the 'counter' currency. Prices will always be expressed in terms of the counter currency.
Expanding on this example, if the current price of the EUR/USD pair is shown as 1.3667, this means that 1 Euro (the base currency) equals $ 1.3667 US Dollars. Most major pairs are priced to 4 decimals, or 1/100th of one percent. The exception is the Japanese Yen pair, which trades only to 2 decimals. That's because there are typically over 100 Yen to the dollar. For instance, let's say the US Dollar is the base currency, in the USD/JPY pair where prices here are expressed in Japanese Yen. If the current price is 108.02, that means the base currency, the US Dollar, equals 108.02 Japanese Yen.
Prices in Forex are expressed in something called 'pips'. A pip is simply the minimum increment that a currency pair price can change. All that means is if the EUR/USD price changes from 1.3790 to 1.3791, the price is said to have gone up by 1 pip. Quotes on Forex pairs are on a bid-ask basis. The bid; price the market is willing to pay a seller at a point in time for a specific currency pair, the ask; the price that the market is willing to sell to a buyer in the same manner. The difference between the bid and the ask is called the bid/ask spread just like in stocks.
These Forex prices are always listed as Bid price first, Ask price second. For example, a typical EUR/USD quote could be 1.3784 Bid // 1.3787 Ask in which case the quote price would have a spread of 3 pips. The spread is how market makers are compensated, as opposed to 'commissions' paid for trading stocks or options. The spread will often vary depending on a number of factors such as: Current market conditions, specific brokers/market makers, and currency pairs being traded, just to name a few. In the EUR/USD example above, price quotes would be expressed simply as 1.3784/1.3787 or 1.3784/87.
Finally, we know that Forex trades in 'Lots' similar in a way to stocks. These lots can be delineated as types of lots including: standard, mini and micro. Standard lots trade 100,000 units of a currency pair while Mini lots trade 10,000 units and the micro lots trade 1,000 units. To illustrate this consider for example, a standard lot purchase, if the EUR/USD quote was 1.3784/1.3787, then buying this pair would mean buying 100,000 Euro dollars and selling short 137,870 US Dollars.
