The foreign exchange or forex market is the most liquid market currently available. It is a global, decentralized over-the-counter market that focuses on the buying and selling of currencies. Participants in this market are called forex traders, currency traders and currency speculators. The daily trading volume of the forex market reaches into the trillions of dollars, enough to swallow whole the entire volume of the New York Stock Exchange several times over.
Since the forex market is so liquid, it is the easiest market to both make and lose money in. The forex market is based upon making favorable trades, which are in turn based upon accurately judging the movements of currency exchange rates.
Since currencies are valued only relative to one another, currencies are usually bought and sold in pairs. For instance, a popular trading pair is the United States Dollar/English Pound or USD/GBP in common notation. The first currency is the currency being sold, while the second is the currency being bought.
In this example, the trader is selling his dollars and using the profits to buy pounds on the open market. This trader obviously expects to profit by doing so, so he projected that the pound would rise in value compared to the dollar. Thousands of trades like this are carried out on a daily basis.
This series of webpages will examine the forex market in detail in three areas: trading, a guide to trading and popular software programs used by traders.