You probably know the exchange offices, which are present at almost every major railway station. That small desk with the sign next on which all the different currencies can be seen.
People who stand in line there participate in the foreign exchange (Forex) market, or the international currency market. At the moment they exchange their money for the same amount minus a commission in another currency, the value of the currency has changed a very little bit.
Of course, the accumulated amounts of what people physically exchange at the station or at the airport is negligible. Most of the money changes hands through an online buy and sell order system of currency pairs. A system in which everyone can participate nowadays within a couple of minutes, whenever and wherever they want; from PC, Smartphone and tablet.
A currency of a particular country, expresses the value of the country or financial economic zone. Someone who wants to make money through Forex trading bets that one country or financial area is going to do better or worse than the other through the Forex system. For example, if someone thinks that the Euro is worth more than the Dollar, he buys the EUR / USD Forex pair to make a profit.
You always buy currencies in pairs, because you expect one currency to increase or decrease in value with respect to the other currency.
Did you know that the most traded currency pair is the EUR/USD? Other frequently traded currencies are the following:
GBP Great Britain Pound British Pound
JPY Japanese Yen Yen
CHF Swiss Franc Swiss Franc
CAD Canadian Dollar Canadian Dollar
AUZ Australian Dollar Australian Dollar
NZD New Zealand Dollar New Zealand Dollar
For more Forex pairs see the Forex webpage.
Continue reading: Lesson 2: Where to trade Forex?