How trades work
In Forex trading, investors are exchanging the currency of one country to another country’s currency. The reason for this is that the investor believes that the exchange rate will change in his favor,so that when he sells the new currency, it will be for a higher price than he initially bought it for. As an example of this, let’s say an investor buys €1000 when the exchange rate of EUR/USD is .8900. This means that it will cost him $890 to purchase that €1000. A few years later, the euro have gotten stronger, and the same investor then exchanges his €1000 back to USD when the exchange rate is 1.1000. This means that he will get $1100 for his €1000, making him a profit of $210.
Speaking in volume, the currency exchange market is the largest market in the world with a daily volume of almost 1.5 trillion dollars changing hands every day. This number has increased rapidly as online trading became popular along with the new trading websites that has recently started to get established on the internet.
In financial trading, the currencies are always quoted in pairs such as GBP/USD or EUR/USD, where the first currency in the order is known as the base, and the second one is known as the counter currency. What this means is that if you choose to buy GBP/USD, you have purchased GBP while simultaneously selling USD. You would do this when you expect the pound to get stronger in relation to the US dollar. On the other hand, if you think that the American market will grow and get stronger, and the dollar to get stronger in relation to the British pound, you would sell GBP/USD.
The most common currencies is by far US dollar (USD), Euro (EUR), Pound Sterling (GBP), Japenese Yen (JPY), Canadian Dollar (CAD) and Swiss Franc. Together these currencies makes for over 80% of all the worlds currency trading.