Forex is the global market where currencies are traded. The Forex market is the world’s largest and most liquid market, with an average daily trading volume of more than $5 trillion. All forex trades involve two currencies, as you are speculating on the value of a currency against another. Exchange rates are determined by the market forces of supply and demand and are affected by geopolitical and economic events around the globe.
If you expect that a currency will rise in value, you can buy that currency (open a long position), with the prospect of selling it at a higher price, if the market moves in your favour. If you expect that a currency will depreciate in value, you can sell that currency (open a short position) and then if the price indeed falls, you can buy it at a more favourable price.
The basis of currency trading on the Forex market is the so-called ‘currency pairs’ or the price of one currency against another currency in a given pairing. The most popular pair is EUR/USD, or the ratio of the exchange rate of euro to the US dollar. It accounts for about 80% of trading on the Forex market. Such pairs as GBP/JPY, EUR/JPY, and GBP/USD are also popular among individual traders because of their strength and high volatility.