What forex is
What forex is
Forex is the market where one currency is exchanged for another. Every price is a pair, and reading a pair correctly is the first skill you need.
In this lesson you learn what the forex market is, how to read a currency pair, and what it means to buy or sell one. No chart and no maths yet: just the vocabulary every later lesson builds on.
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1 Every price is a pair
Forex (foreign exchange) is the market where currencies are swapped for one another. A currency never has a price on its own. It is always priced in another currency, so every forex quote names two of them: a currency pair such as EUR/USD.
If EUR/USD is quoted at 1.0850, one euro costs 1.0850 US dollars.
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2 Base and quote
The first currency in the pair is the base, the second is the quote. The price tells you how many units of the quote currency one unit of the base currency costs.
- EUR/USD: base is the euro, quote is the US dollar.
- USD/JPY: base is the US dollar, quote is the Japanese yen.
When the price goes up, the base currency has strengthened against the quote. When it goes down, the base has weakened.
Quick check
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3 Who trades it, and when
Banks, companies paying overseas suppliers, investment funds, central banks, travellers and individual traders all exchange currencies. There is no single exchange building: forex is traded over the counter between dealers around the world.
Because the major financial centres (Sydney, Tokyo, London, New York) hand over to each other, the market is open around the clock from Monday morning in Asia to Friday evening in New York.
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4 What a trader actually does
Buying a pair is a view that the base currency will strengthen against the quote. Selling a pair is a view that the base will weaken.
Most retail traders never receive the currency itself. They trade a contract whose value follows the pair’s price (a CFD), and the difference is settled in their account. If the price moves against the position, the loss is real money. That is why Module 1 is risk management, before any strategy.
Check your understanding
0 of 2 questions right. Answer them all to complete the lesson.