Chapter 1 What is Forex?
Forex stands for foreign exchange and it is a global market of exchange between national currencies, with the highest trading volume and liquidity. Every day transactions are concluded worth a total of approximately $6.6 trillion, made up of over 150 government-backed national currencies.
When the exchange rate of two currencies quoted against is other is given, it is called a currency pair or cross. When the biggest currencies by volume are quoted against each other – all involving the U.S. Dollar – they are called “currency pairs”. Pairings not involving the U.S. Dollar are called “currency crosses”. The most important currencies, i.e. those with the greatest trading volumes, are the U.S. Dollar, the Euro, the Japanese Yen, and the British Pound.
Usually, Forex pairs are offered for trading as contracts for differences (CFDs). This means that you don’t actually buy legal ownership of any currencies when you make a trade, you just agree to make profit or loss by a defined amount according to the movement of the broker’s price feed. Even where brokers offer Forex trades as “spot” and not CFDs, there is almost always a legal mechanism in place to stop you ever having to take delivery of any amount of actual currency.
