For Business

Market Basics

What Is Forex Trading

Forex trading is buying one country's money with another country's money. This paper shows you how to read any currency pair as a price tag, what buying and selling it actually do, what its price looks like on the screen, and how one real trade turns a move in the price into dollars — the same trade at three sizes, on a day that went up and a day that went down.

Difficulty
Beginner
Reading time
6 min
Pages
9
Reviewed by
Saman Rahbar

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A price tag written in another currency

Forex trading is buying one country's money with another country's money. That is the whole activity. The screen makes it look like something else — a chart, a ticker, a wall of numbers — but every line on that screen is a price tag. The thing for sale is the currency on the left. The price on the tag is written in the currency on the right. EUR/USD at 1.16261 means one euro costs 1.16261 US dollars, and nothing more.

What buying and selling do

When you press buy on this line you hand over dollars and hold euros. If the euro gets dearer — the number goes up — the euros you hold are worth more dollars than you paid, and that difference is your profit when you sell them back. When you press sell you do the opposite: you hand over euros and hold dollars, and you make money if the number goes down. Selling first sounds impossible, but you are always holding one of the two currencies, so either order works. Neither is more natural than the other.

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