Forex, also known as foreign exchange, is the process of changing one currency into another. This can be done for a variety of reasons – tourism, commerce, or trading.
The place where the trade between the two currencies happens is called the foreign exchange market. It is one of the most actively traded markets in the world, with an average daily trading volume of $5 trillion.
When you trade in Forex, you speculate whether one currency will rise or fall in value against the other and potentially make profits.
What are Currency Pairs?
When you trade in the Forex market, you buy or sell in currency pairs.
A currency pair is a quotation of two different currencies, where one is quoted against the other. The first listed currency is called the base, while the second currency that is the benchmark is called the quote.
The currency pairs are compared against one another to understand how much of the quote currency is required to buy one unit of the base currency.
Each currency in the pair is listed as a three-letter code.
The first two letters identify the name of the country, and the third letter usually denotes the first letter of the currency’s name.
For example, USD stands for the US dollar and CAD for the Canadian dollar.