Forex, also known as the foreign exchange market, is a global platform for buying and selling currencies. Currencies are the official money of each nation and are usually traded in pairs such as EUR/USD or EUR/JPY.
Forex trading is conducted over the counter, meaning there is no physical exchange. It is supervised by a network of banks and other financial institutions. Institutions (banks, multinational corporations and fund managers) use it primarily to protect themselves against international currency and interest rate risk.
The Forex market is unique in that it’s open 24 hours a day, five days a week. *Trading hours may differ with daylight savings time.
Currency pairs are traded and each assigned a three-letter code, similar to stock ticker symbols. The most popular pair is EUR/USD, which represents the euro against the U.S. dollar; however, there are many other available pairings as well.
Currency quotes are an essential aspect of forex trading, providing traders with insight into what other investors think about the value of a particular currency. A quote displays the price at which a dealer is willing to purchase or sell one unit of one base currency for a specified amount in another currency.
Bid and ask prices are essential to understand, as they reflect a dealer’s position. The bid price is the lowest amount that they are willing to sell a unit of base currency for, while an ask price is the highest amount they would buy that same unit from another seller.