Forex trading involves the trading of currencies of different countries. To conduct trading and commerce in foreign markets, currencies are the medium of exchange. In the world of forex trading, currency trading is always conducted in pairs. The most common currency pair traded is USD and EUR. Suppose you buy 100 Euros, the European currency in the beginning of the year 2010 using 120 USD. Now, the USD decreases in value throughout the year and so the price of 100 Euros depreciates to 140 USD toward the end of the year 2010. Thus, if you sell 100 Euros at this juncture, you stand to gain 20 USD through this whole transaction; yes it can be that simple.
The most common forex currencies traded include the American dollar, the British Pound, the Chinese Yuan, the European Euro, and the Japanese Yen. These are the prominent currencies of the world and forex trading is carried out in large sums, generally through these currencies. Just like the pricing of stocks, the foreign exchange pricing also sees fluctuations, as the currency of one nation rises or falls in value compared to that of another nation.
Forex trading is the largest financial market with the highest liquidity. It is much bigger than the stock market, given that forex trading runs to the tune of $2000 billion USD each day. This was reported by the Bank for International Settlements. Forex markets are open for trading 24 hours a day, and they are operable five and a half days each week.