Foreign Exchange 101: How To Trade For Beginners

Trading Forex

Foreign exchange market, an over-the-counter or global decentralized market for the trading of currencies. The market determines the foreign exchange rates for every currency, including all aspects of currencies at determined or current prices for:

  • Buying
  • Selling
  • Exchanging

Most international travelers have experienced the exchange process of their native currency for the local currency at their destination. Dozens of different fiat currencies worldwide, and the exchange rates among those currencies fluctuate every day due to several factors, including:

  • Supply and demand dynamics
  • Shifts in local economic conditions
  • Credibility of the states backing the currencies 

Trading Forex has become lucrative nowadays due to its location, where traders look for a good exchange of their foreign here. Foreign exchange or traders speculate on altering exchange rates by converting large amounts of money from one currency to another, much like stock traders buying and selling stocks. Forex traders attempt to buy and sell high for a profit, yet the asset they trade is currency.

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How does trading forex work?

The foreign exchange market operates 24 hours daily, including most U.S. holidays. Forex trading is performed over the counter. It means that there is no physical exchange of assets. Forex trading is conducted over the counter. It means there is no physical exchange of the assets. Instead of using the central exchange, the forex market is operated and monitored by financial institutions and a global network of banks.

The forex traders are trading the currency pair, and a quotation of 2 different currencies is paired together. The currency pair tells traders the current market the value of one currency relative to another.

Currency codes

Every currency in a pair is represented by a three-letter code; these codes are two letters that depict the region where the currency came from and a letter that represents the name of the currency itself. Currency codes are followed, for the U.S. dollar, the currency code used is called USD, and the abbreviation and the code for the British pound is GBP. Abbreviations are used to make it simple and short.

The base currency is the first currency that is listed in the currency pair quote. Quote currency is what the currency called for the second currency. The quote is the ratio of how much the quote currency the trader purchases one unit of the base currency. If you have the quote for USD/EUR pair is 1.06, which means 1 EUR is worth $1.06