The foreign exchange market or currency market, known informally as Forex, is an over-the-counter trading instrument where one currency is traded for another. It is the most traded market in the world, with an average turnover of $3.2 trillion per day.
(Source: Bank for International Settlements, September 2007)
(Source: Bank for International Settlements, September 2007)
Simply put, Forex is the trading of currencies against one another. Each currency pair is traditionally noted XXX/YYY - for example, USD/JPY is the US Dollar paired with the Japanese Yen. Unlike stocks and futures exchanges, the Forex market operates 24 hours a day from Sunday 17:15 to Friday 16:30 Eastern Time (US). This allows traders to react to news when it breaks, rather than having to wait until the market is open.
Example of Foreign Currency Trading:
USD/JPY is trading at (sell/buy) 109.47/109.50 and you believe that the USD is trending downward. You may sell the pair at 109.47.Opening Position:
Closing Position:
After two days the USD/JPY buy price decreases 100 pips to $108.47/108.50, at which point you decide to buy the currency pair back. If the buy price moves in the opposite direction, you will realize a gross loss.
Source - http://www.fxsol.co.uk/forex/what-is-forex.asp
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