What is Forex Trading?

The Foreign Exchange Market (which is also known as Forex or FX) is a global market for currency trading. The foreign exchange market determines the relative values of different currencies.


Unlike the stocks or commodities market the Forex market is a completely decentralized one which means that there is no central location and there are no formal exchanges where transactions take place. Practically all Forex trades are done “over-the-counter” electronically by telephone, internet or in person.


Forex is a general term which is combining all worldwide financial institutions and organizations of all sizes into a single market place.


A trader profits by correctly predicting future values of currencies. E.g. when a trader thinks that the U.S. dollar is going to increase in value against the Canadian dollar he can buy the USDCAD currency pair. When he is right and the value of the U.S. dollar increases he can sell the pair for a higher price.


So your profit is the difference between the purchase price and the sale price multiplied by the number of lots which are traded - trade size - or vice versa if you sell the pair short.