One currency for another
Forex — short for foreign exchange — is the market where one currency is exchanged for another. Every time a company pays a supplier abroad, a tourist changes money, or a central bank adjusts its reserves, a forex transaction happens. Added together, those transactions make forex the largest financial market in the world, with trillions of dollars changing hands every day.
You always trade a pair
You cannot buy "the dollar" on its own. You buy dollars with something, and sell dollars for something. That is why every forex price is quoted as a pair, like EURUSD: the price tells you how many US dollars one euro is worth. If EURUSD moves from 1.0800 to 1.0900, the euro has strengthened against the dollar.
Why prices move
- Interest rates. Money flows toward currencies that pay more to hold them.
- Economic data. Growth, employment and inflation figures change expectations about those rates.
- Risk appetite. In calm markets traders reach for higher-yielding currencies; in nervous ones they run to safe havens like the US dollar, the yen and the Swiss franc.
- Flows. Large orders from corporations, funds and central banks move prices simply by their size.
Who trades
Banks, corporations, funds, central banks — and retail traders like you, who reach the market through a broker. A broker such as NPE Market gives you a platform, a price feed and leverage, and passes your orders into that larger market.
Summary
Forex is the exchange of one currency for another, always quoted as a pair, open around the clock on weekdays, and moved by interest rates, data and flows. The next lesson looks at how a pair is written and read.