What is Forex?

Forex, is a combination of Foreign and Exchange.

It is where businesses, governments, investors, and individuals buy or sell currencies.

In simple words, when you want to travel from Asia to Europe for vacation.

So you purchase the euros or exchange cash to get the local money of your vacation destination.

While you are doing this you’re taking part in the forex or foreign exchange (FX) market.

Businesses and individuals often do this while investors trade currencies to profit from fluctuating exchange rates.

Infact, there’s no single place to trade forex, it is decentralized .

Basically operates through a global network of banks, financial institutions, and individual traders who trade electronically.

And guess what?

It is the biggest financial market in the world, almost $7.5 trillion is traded here every single day.
Plus it runs 24 hours a day, for 5 days a week!

How can one make money with Forex?

It’s pretty straight forward

Let’s get back to your Europe trip.

Later, when you return home, you exchange your leftover euros back into your local currency.

But wait!

The exchange rate has changed.

If the euro became stronger while you were away, you’d get more dollars back.

If it became weaker, you’d get less.

This is exactly how Forex trading works!

But instead of exchanging money for travel, Forex traders buy and sell currencies to make a profit.

They try to predict which currency will rise in value and which will fall.

If they’re right, they make money!

You may also like to read : Forex Trading for Beginners

But What are Currency Pairs?

In Forex, you always trade two currencies at the same time.

That’s called a currency pair.

Think of it like a see-saw. If one side goes up, the other goes down.

For example:

GBP/JPY = British Pound vs. Japanese Yen

In every pair:

The first currency is called the base currency (GBP)
The second currency is called the quote currency (JPY)

In simple words if the pair is trading at 185.50, that means:

1 British Pound = 185.50 Japanese Yen

When you trade this pair,
You’re betting one currency will get stronger than the other.

If you think the GBP will go up compared to the JPY, you “buy” the pair.

If you think the GBP will go down, you “sell” the pair.

Say You believe that GBP will go up from the current 1.1000.

Later, the price moved to 1.1050.

You close your trade and make 50 pips in profit.

So in Forex, you're always trading one currency against another, that’s why it's called a pair.

Now it doesn’t end here, there are three main types of currency pairs in Forex:

1. Major Pairs

These are the most traded currency pairs in the world.

They always include the US Dollar (USD) on one side.

Examples:

* EUR/USD (Euro / US Dollar)

* USD/JPY (US Dollar / Japanese Yen)

They have high liquidity and lower transaction costs.

2. Minor Pairs (or Crosses)

These do not include the US Dollar, are still commonly traded but have slightly less volume.

Examples:

* EUR/GBP (Euro / British Pound)

* GBP/JPY (British Pound / Japanese Yen)

3. Exotic Pairs

These pair a major currency with the currency of a developing or smaller economy.

Examples:

* USD/TRY (US Dollar / Turkish Lira)

* EUR/INR (Euro / Indian Rupee)

They can be more volatile and have higher spreads (costs).

So when you trade Forex, you're usually dealing with one of these three:

Majors, Minors, or Exotics depending on what currencies you're working with.

What is Forex?

How can one make money with Forex?

But What are Currency Pairs?

Pips, Lot Size, Leverage, and Spreads.

What is Forex? A Beginner's Guide to Currency Trading

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