Basic Terms of
Foreign exchange, also called Forex or FX, is the trading off with the aim of profiting from changes in their value. The forex market has tremendous liquidity since it is the biggest market in the world by a wide margin, bigger than any other. Many traders, both inexperienced and seasoned, are drawn to this market.
The Euro against the American Dollar, or EURUSD, is the most traded pair. The currency we want to buy or sell is the one on the left, known as the base currency, and we use the one on the right, known as the secondary currency, to complete the transaction.
There are two prices for each pair: an ask price for selling the base currency and an offer price for purchasing it (bid). A spread, which is the price brokers charge to open the position, is the difference between them. A currency’s spreads will be less the more it is traded, or the higher it’s level of liquidity. The spreads will be greater for rarer pairs since reduced liquidity typically involves higher volatility. The greater spread is a direct result of the elevated risk. Forex is the world’s most-traded financial market, with transactions worth trillions of dollars taking place every single day.