What is the currency market for?
Forex is the global market where one currency is exchanged for another. Companies use it to pay for foreign trade, while banks and investors use it to hold assets in different currencies. It has no central exchange; trades take place over electronic networks between banks and brokers around the world.
How to read a currency pair
Prices are always shown as a ratio between two currencies, such as EUR/USD. The currency on the left is the base currency, the one on the right is the quote currency, and the price tells you how many units of the quote currency one unit of the base currency is worth. If EUR/USD is 1.1000, one euro is worth 1.10 US dollars.
Bid and ask
Every pair shows two prices: the bid and the ask. The bid is used when you trade in the selling direction, and the ask when you trade in the buying direction. The difference between them is called the spread and is part of the cost of a trade.
How the market runs through the day
The forex market is open almost around the clock on weekdays, because financial centres in different time zones open one after another. The Asian, European and North American sessions follow each other, and trading volume and price movement usually pick up when sessions overlap. The market is closed at the weekend, and on Monday the price can open at a different level from Friday's close.
Why prices move
Exchange rates are affected by many factors, such as interest rates, inflation, growth data and political events. It is not possible to know in advance which of these will matter most, or when. That is why understanding the reasons behind price moves is a more realistic starting point than trying to predict them.
Example: reading a quote
Suppose, hypothetically, EUR/USD shows a bid of 1.1000 and an ask of 1.1002. A trade opened in the buying direction starts at 1.1002, and one opened in the selling direction starts at 1.1000. The difference of 0.0002 is the spread. The numbers are for illustration only.
This lesson is for education only and is not investment advice. Trading leveraged products carries a high level of risk, and you can lose all of the money you deposit.
Read the risk disclosure