The Forex market is always “open”; it’s the 7-Eleven of the trading world and is the largest financial network in the world with daily average turnover totaling trillions [...] No related posts.]]> Forex trading takes place through major banks, market makers, and brokerage hourses around the world, who together create a marketplace for trading currencies on a near 24/7 basis.

The Forex market is always “open”; it’s the 7-Eleven of the trading world and is the largest financial network in the world with daily average turnover totaling trillions of dolaars.

It is also a growing market, as more traders turn to foreign currency trading and away from stocks.

At its simplest, trading foreign currency involves two currencies traded similtaneously, called a ‘pair’. Fore example, the EUR/USD pair, trade the Euro against the US Dollar. In this example, a buyer of this pair would be ‘buying’ the Euro and ’selling’ the US Dollar.

Forex pairs are represented in the following format: XXX/YYY

XXX, the first currency in the pair, is called the ‘base’ currency. YYY, the second currency in the pair, is called the ‘counter’ currency in the pair. Prices are always expressed in terms of the counter currency.

For example if the current price of the EUR/USD pair is shown as 1.3667, this would mean 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 to this is the Japanese Yen pair, which trades only to 2 decimals. This is because there are typically over 100 Yen to the dollar.

In an instance where the US Dollar is the base currency, the USD/JPY pair for example, prices here are expressed in Japanese Yen. If the current price is 108.02, this means that the base currency, the US Dollar, equals 108.02 Japanese Yen.

Forex prices are expressed in pips. What is a pip? A pip is simply the minimum increment that a currency pair price can change. For example, if the EUR/USD price changes from 1.3790 to 1.3791, the prices is said to have gone up by 1 pip.

Forex pair quotes are on a bid-ask basis. The bid is the price that the market is willing to pay a seller at a point in time for a specific currency pair. The ask is the price that the market is willing to sell to a buyer at a [point in time for a specific currency pair. The difference between the bid and the ask is called the bid/ask spread.

Forex prices are always listed as Bid price first, Ask price second.

For example, a typical EUR/USD quote coule be 1.3784 Bid // 1.3787 Ask in which case the quote price is said to 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 can and will vary depending upon a number of factors, including but not limited to: current market conditions, the specific broker or market maker you use (some do charge higher spreads than others), the currency pair being traded (more thinly traded currencies often have higher spreads).

For the EUR/USD example above, the quote would be expressed simply as 1.3784/1.3787 or 1.3784/87.

Much like buying shares of stock, Forex trades in ‘Lots’. There different types of lots, including: standard, mini and micro.

Standard lots trade 100,000 units of a currency pair. Mini lots trade 10,000 units and micro lots trade 1,000 units.

For example, for 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.

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