What is forex?
The foreign exchange market, popularly known as forex, is the decentralised international market for buying and selling currencies..
Forex is the largest financial market in the world, and is also commonly known as Foreign Exchange, the Currency Market..
The forex market help companies and individuals convert one currency into another. At the simplest level, we all participate in it when we travel overseas and sell our home currency in exchange for the cash we need to spend abroad..
As well as being traded by individuals and businesses, forex is important for financial institutions, central banks, and governments. It facilitates international trade and investment by allowing companies that earn money in one currency to pay for goods and services in another..
Forex Spread Betting - 'Forex Spread Betting'
A category of spread betting that involves taking a bet on the price movement of currency pairs.. A company offering currency spread betting usually quotes two prices, the bid and the ask price - this is called the spread.. Traders bet whether the price of the currency pair will be lower than the bid price or higher than the ask price. The narrower the spread, the more attractive the currency pair. Like spread betting, traders do not need to actually own any currency...
INVESTOPEDIA EXPLAINS 'Forex Spread Betting'
A brokerage firm quotes an ask price for the EUR/USD pair at 1.0015 and a bid price at 1.0010. If you as a trader believe that the Euro will strengthen compared to the USD, you could “bet” € 0.5 for every point (Pip) the Euro increases above 1.0015. If the EUR/USD after a certain period of time came to $1.0025, you would receive € 5.. If the price of the Euro was instead $1.0005, you would end up losing € 5..
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How a forex trade works
Forex prices are always quoted in currency pairs. This is because you are effectively buying one currency while selling the other..
Each currency in the pair is known by a three letter currency code, such as GBP/USD (sterling against the US dollar) or USD/JPY (the US dollar against the Japanese yen)..
The first currency listed in a pair is known as the base currency. It is also sometimes referred to as the primary currency. The second currency in a forex pair is known as the quote currency, or counter currency.
A forex price indicates how much one unit of the base currency will buy o1.64772 dollars.
To buy one pound, you would have to sell 1.64772 dollars. If you sold one pound you would receive 1.64772 dollars.