MASTER YOUR FOREX FUNDAMENTALS

We answer frequently-asked FX questions to help kickstart your trading

For those just getting started in the world of forex, we have created a comprehensive Beginner’s Guide to introduce you to the terminology and answer
FAQs. Most importantly, we have kept things simple.

TIP: Looking for an in-depth guide to forex terminology? Check out our glossary page.

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Trading involves risk. You may lose your capital.

So, what is the forex market?

Foreign exchange (also known as forex or FX) refers to the global, over-the-counter (OTC) market in which traders, investors, institutions and banks buy, sell and speculate on currencies from around the world.

Trading is conducted over the ‘interbank market’, an online channel through which currencies are traded 24 hours a day, five days a week. Forex is one of the largest trading markets, with a global daily turnover estimated to exceed US$5 trillion.

What is a forex broker?

Brokers act as intermediaries, facilitating trades by providing clients access to the 24-hour interbank markets.

FXTM offers a number of different accounts, each providing services and features tailored to our clients’ individual trading objectives. Discover the account that’s right for you on our account page. New to forex trading? Learn about the markets and practice risk-free by opening a demo account.

What is forex trading?

Forex trading is the act of buying or selling currencies. Banks, central banks, corporations, institutional investors and individual traders exchange foreign currency for a variety of reasons, including balancing the markets, facilitating international trade and tourism, or making a profit.

Currency is traded in pairs, in both spot and futures markets. The value of a currency pair is driven by a combination of economic, political and environmental factors, such as wars, natural disasters, and elections.

What are currency pairs?

All transactions made on the forex market involve the simultaneous purchasing and selling of two currencies.

These are called ‘currency pairs’ and include a ‘base currency’ and a ‘quote currency’. One of the most common currency pairs used on the forex market is EUR/USD (Euro/US Dollar). The most popular currency pairs are known as ‘major pairs’, of which EUR/USD is one. GBP/USD, AUD/USD, USD/CHF, NZD/USD and USD/CAD make up the rest of the major pairs.

Learn the lingo

Now that you’ve got to grips with the basic concepts of forex, here’s a lowdown of some of the technical terms you’re likely to come across:

Base Currency – The base currency is the first currency that appears in a forex pair. This currency is bought or sold in exchange for the quote currency.

Quote Currency – The quote currency – also referred to as the ‘counter’ currency – is the second currency that appears in a forex pair.

Bid Price – The Bid Price is the price a trader is willing to buy a currency pair at. It is given in real-time and constantly updated.

Ask Price – The Ask Price is the price a trader will sell a currency for. It is given in real-time and will change constantly, driven by market demand and the political and economic factors that influence the value of individual currencies.

Spread – A spread is the difference between the ask price and the bid price. In other words, it is the cost of trading. For example, if the Euro to US dollar is trading with an ask price of 1.0918 and a bid price of 1.0916, then the spread will be the ask price minus the bid price. In this case, 0.0002.

Pips – A point in price – or pip for short – is a measure of the change in a currency pair in the forex market. The acronym can also stand for ‘percentage in point’ and ‘price interest point’. A pip is used to measure price movements, and it represents a change in a currency pair. Most currency pairs are quoted to five decimal places.