Length : 2.00 Minutes

What Does "Forex Trading" Mean?

Forex trading is the act of speculating on the foreign exchange market, with the aim of making a profit.

It is also known as currency trading, FX trading or foreign exchange trading.

Generally speaking, forex trading involves exchanging one currency for another, or to put it differently buying one currency while simultaneously selling another.

As a trader, you buy or sell currencies for the purpose of generating return from the market movement.

Currencies are traded usually through a broker, a dealer, or a bank and are always traded in pairs.

Every currency pair has a price called exchange rate. An exchange rate is a price paid for one currency in exchange for another. It is this type of exchange that drives the forex market.

When you exchange US dollars for Euros, there are two currencies involved. For every foreign exchange transaction, you must exchange one currency for another. This is why the forex market uses currency pairs, so you can see the cost of one currency relative to another.

For instance EUR/USD is the most traded currency pair in the world. The EUR/USD price or exchange rate lets you know how many US dollars (USD) it takes to buy one euro (EUR).

Based on the illustration above, considering the exchange rate at the time is 1.1350, then 1 Euro would give 1.1350 US dollars in exchange.

As discussed, forex trading is the act of speculation on the price of one currency against another. As a Forex trader, you trade a pair on the basis of speculation to generate some profit from its movement in the market.