FOREX is the Foreign Exchange market. Other names for this market include “retail forex,” “FX,” “Spot FX,” or “Spot.” It is, globally, the biggest financial market. To understand the scope of the FOREX, let’s compare it with another large financial market. Take the New York Stock Exchange for instance. Twenty-five million dollars are traded daily on the NYSE. Now compare that with the $2 trillion trading volume that takes place every 24 hours on the Foreign Exchange market. Get the picture?

Another way to define the FOREX is to look at what is actually being traded. Unlike the NYSE, what is being traded on the FOREX is not stock or share in a company, but simply currency, foreign currency, to be more specific.

A FOREX trade consists of a pair of currencies (e.g., EUR/US or JBY/GBP). The trade is made simultaneously: the buying of one currency and the selling of the other. The current value of a country’s currency is a numerical rendering of what the existing and prospective economic state of that country’s economy is valued at by the market. Thus, the exchange rate between two currencies is a reflection of the economies of those countries, as compared to each other.

Another difference between this market and other money markets, like the NYSE, is that there is no physical address for the foreign exchange market. It is defined as an Over-the-Counter (OTC) market or “Interbank market” because it is an electronic market that takes place within a banking network, 24-hours a day.

The aim of the game is to buy or sell a large amount of one currency against the value of another currency. The trader’s hopes are that the price of the bought currency will gain value, in comparison with another currency, so that he can make a profit on the difference, when he sells. These two currencies are represented as a pair of currencies. Currencies will always be represented in pairs because the exchange rate requires two currency values in order for an exchange rate to occur.

For example, you will see a currency pair represented as “EUR/USD.” This is the exchange rate of Euros to US Dollars. The “base currency” (Euros) is on the left; the “counter currency” or “quote currency” (US Dollars) is on the right. The exchange rate, for buyers, is how much of the quote currency you will need to purchase one unit of the base currency. The exchange rate, for sellers, is how much of the quote currency you will receive for selling one unit of the base currency. You buy the base currency and sell the quote currency if you think the base currency is going to appreciate against the quote currency. If you think the value of the base currency will go down in relation to the quote currency, you sell. These two actions are the basis for Forex trading and they are referred to as “going long” or “going short.”