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What Is Forex Trading and How Does It Work?

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The Basics  Forex means the process of exchanging one currency for another based on the market’s exchange rate with these currencies being sold and purchased in pairs. For instance, for you to purchase Japanese Yen you have to sell US dollars and as a result Forex currencies have to be quoted in pairs, for example, GBP/USD, EUR/USD, or EUR/JPY. Some currencies have more demand than others meaning that those with more demand trade more frequently and are referred to as major currencies.

Some of the major currencies include the Swiss Franc, Japanese Yen, British Pound, Australian Dollar, and US Dollar, whereas the less frequently traded currencies are called minor currencies, these are the currencies used in small developing countries, others refer to them as exotic currencies. Currencies commonly used as investment vehicles are confined into four pairs of currencies denoted by USD/CHF, GBP/USD, USD/JPY, and EUR/USD.

Where Forex Trading Takes Place  In the past, Forex trading was exclu…