Two currencies paired against one another to make up an exchange rate. The first pair listed is called the base and the second pair is called the quote. In the currency pair GBP/USD the base is GBP and the quote is USD. When paired, it will show how much the quote currency needs to purchase one unit of the base currency.
The amount needed of one currency to purchase 1 unit of another currency. It represents the comparison between two countries.
Short for Foreign Exchange which is exchanging one currency for another. Forex trading is the purchase of one currency and selling of another simultaneously for profit
BeginnerEarly Stages for Beginners8 Topics
Forex Terminology11 Topics
- Major and Minor Currency Pairs
- Basic Forex Terminology
- Pips & Ticks
- The Broker & The Spread
- What is a Lot?
- Stop Loss & Take Profit
- Margin & Leverage
- Retracement & Reversal
- When Can I Trade Forex? Sessions - Market Open and Close
- 3 Types of Analysis (Technical, Fundamental, Sentiment)
- 3 Ways a Market Can Go (Up, Down, Sideways)
Margin & Leverage2 Topics
Personal Psychology Questions2 Topics
Psychology for Beginners7 Topics
IntermediateIdentifying Scams2 Topics
Brokers for Beginners5 Topics
Technical Analysis13 Topics
- Types of Charts
- Understanding Japanese Candlesticks
- Candlestick Patterns For Beginners
- Single, Double & Triple Candlestick Patterns
- Support and Resistance
- Confluences w/ Candlesticks & Support & Resistance
- Counter Trend Trading/ Counter Trend Lines
- Moving Average
- Top-Down Analysis
- Consolidation Trading (Breakout, Retest, Continuation)
Market Structure5 Topics
CompletionRisk Management for Beginners8 Topics
Fundamental Analysis9 Topics
AdvancedUsing Indicators6 Topics
Technical Analysis (Part 2)8 Topics
What is Forex?
You know how in the Stock Market you’re buying shares of a certain company whose valuation you think will appreciate over time? In Forex, you’re buying and selling currency pairs against each other.
Forex stands for Foreign Exchange, and it’s a global financial market that allows you to trade currencies. So you’re not investing in ANYTHING, you’re trading it. We’ll elaborate more on this soon.
So before the company Apple, was a blue-chip stock, if you thought that it would be a major company one day by selling “1000 songs in your pocket” (iPOD) or the iPHONE, (I’m sure we all did, that’s why we’re all rich now 😅), then you would have invested into the company by buying shares on a stock exchange. You’re not comparing it to any other company.
With Forex, you’re comparing two different currency pairs from two different countries. Let’s use The United Kingdom and the United States for comparison. If you think one currency will be stronger than the other, and you PREDICT that accurately, then you will make a profit and be rich tomorrow! If you predict incorrectly, then you will lose money and stay in your mom’s basement. Both are jokes by the way.
On a serious note, another way of explaining Forex is traveling to another country. Have you ever considered why you have to exchange your United States Dollars for Pounds when you’re flying to London? This is because the U.K. has its own currency and value!
Each currency that is paired against each other has an exchange rate that you can Google, find on sites such as TradingView, or see at ANY airport in the world (you may not have ever noticed the currency exchange booth but I guarantee you, you will see it next time). As an example, let’s continue to compare the United States and the United Kingdom.
I will go DEEPER into this part later on, but just to give you a visual example of how you can make money in the markets, I’ll include this below:
The United Kingdom is represented as (GBP) – Great Britain Pound.
The United States is represented as (USD) – United States Dollar.
An example of an exchange rate between these two countries could be: GBP/USD = 1.30000. What this means is that, 1 GBP is worth $1.30 USD.
Let’s say you had 1000 Pounds and you wanted to travel to Los Angeles, California in the United States. For those 1000 pounds at the exchange rate of 1.30000, they would give you $1300 (1 GBP = $1.30 USD)
Let’s also say you went to LA and didn’t spend a DIME! Not a single penny (highly unlikely, but just bear with me). Imagine you wanted to travel back to the UK. You go to the booth at the LAX airport and you hand them the $1300 you had, and instead of them giving you the $1000 you initially gave to them, they hand you back 1,083 Pounds.
How is this? How did you get more money if you didn’t spend anything? Well, over the 2 weeks you were in LA, the exchange rate of GBP/USD dropped to 1.20000! Meaning 1 GBP = 1.20! 1 GBP actually got you LESS United States Dollars, meaning the value of Great Britain dropped in comparison to the United States. Before, with 1000 Pounds, you were able to convert it to $1300 USD. But with the exchange rate being 1.20000, 1000 Pounds will only get you $1200 USD! This means the rate is not as strong as it was when you left for LA. So if you were to redo your entire trip, and needed to head to Los Angeles with $1300, you would need 1,083 POUNDS because the exchange rate dropped. (1 GBP = 1.20 USD). So actually holding the United States Dollar while you were on vacation ended up being beneficial to you because when you returned to London, you received 1,083 Pounds instead of your initial 1,000 pounds.