Forex trading is the act of taking part in the forex market in order to speculate and attempt to make a profit. It can also be known as FX trading, foreign exchange or currencies trading.
Forex trading is always over-the-counter, or OTC. That means that it is decentralised, and doesn’t take place via exchanges. Instead, forex trades are taken care of electronically by a global network of banks, and are available 24 hours.
Trading forex means buying one currency while simultaneously selling another currency. For this reason, forex quotes are always given in the form of currency pairs made up of the quote currency (the currency being sold) and the base currency (which is being bought). Major currency pairs include EUR/USD, USD/JPY and GBP/USD.
Currency movements are measured in pips (points), usually meaning a one-digit move in the fourth decimal place of a currency, or 0.0001. Currencies that have low values, like the Yen, are an exception to this where the second decimal represents a one-point move.
As currencies change in price, forex traders hope to make profit. The price movements in currencies are governed by a wide variety of factors, but tend to reflect the state of their countries’ economy.