How does forex trading work?

In forex trading, currencies are always traded in pairs, called ‘currency pairs’. That’s because whenever you buy one currency, you simultaneously sell the other one.

Each currency pair is made up of two parts:

• Base currency: the first currency listed in the quote and always equal to 1
• Quote currency: the second currency listed in the quote

For example, let’s take a look at this currency pair:

GBP/EUR = 1.17

Here, the base currency is GBP (pound sterling) and the quote currency is EUR (euros). This means that £1 is worth 1.17 euros if you wanted to buy.

Currencies are traded online through a forex broker. The forex market is open 24-hours a day from Sunday night to Friday evening.

When you buy a currency pair, the price you pay is called the ‘ask’ and when you sell, the price is called a ‘bid’. This price for the same currency pair will be slightly different depending on whether you are buying or selling.

These can be a little confusing to get your head around at first. But it helps to remember that prices are always listed from the forex broker’s perspective rather than your own.

In the eyes of a broker, potential buyers have to place a bid when you sell a currency. And you’ll have to pay the seller’s asking price when you buy a currency.

How does forex trading work?

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