Forex ( foreign exchange ) trading is the process of buying and selling one currency for another on a global market with the Aim of profiting from exchange rate fluctuations.
The forex market is the largest financial market in the world by trading volume and is used for purposes like international trade, investment, and speculation.
If you trade the EUR/USD pair, you are simultaneously buying the Euro (EUR) and selling the US Dollar (USD).
Base Currency (EUR): The first currency in the pair. It’s the “asset” you are buying or selling.
Quote Currency (USD): The second currency. It’s the currency used to price the base currency.
The price of EUR/USD tells you how many US Dollars it costs to buy one Euro.
Types of Forex Markets:
- Spot market: The largest of the forex markets, where currencies are traded and settled at the current exchange rate.
- Forward market: An over-the-counter (OTC) market where two parties agree to trade a currency at a set price and quantity on a specified future date.
- Futures market: Similar to the forward market, but trades are conducted on a centralized exchange with standardized contract sizes and settlement dates.