Best Exchange Rates presents the foreign currency exchange market for beginners.

December 6th, 2011

Here at Best Exchange Rates UK, we would like to present a short guide to the foreign currency exchange market. The foreign currency exchange market, also known as the forex market, is the market in which all currencies from across the world are traded. Foreign currency exchange is the world’s largest market that trades almost a trillion a day! As the broker’s learn more and become more interested the market, the market subsequently grows. What differentiates the foreign currency exchange market from all other markets is that it is the most liquid. Also, there is no central marketplace for the exchange of currency; it is all done over the counter. This allows traders to choose who they deal with and allows for comparison of the market. The larger the dealer is, the better their access to pricing with the largest banks in the world. The foreign currency exchange market is open twenty-four hours a day, five days a week between all the major trading centres in the world.

Trading in the foreign exchange market consists of buying one currency and selling another currency simultaneously. This is because the value of one currency is determined by its comparison to another currency. There are two types of currency “base currency” and “counter currency”. Base currency is the first currency of a currency pair, counter currency is the second currency. The currency pair shows how much of the counter currency is needed to purchase one unit of the base currency. When purchasing a currency pair you are buying the base currency and selling the counter currency. The most common foreign currency exchange pairs are: EUR/USD, USD/JPY, GBP/USD and USD/CHF.

So how can we put this in to easier terms? Basically if you have ever travelled to another country, you will have had to find a foreign currency exchange broker and exchange your money into the currency for the country you are visiting. When you exchange this money you are essentially participating in the foreign currency exchange market. When you come back home and miraculously have money left over, you will notice that the exchange rates have changed. This is because the exchange rates allow you to make money in the foreign currency exchange market.

The foreign currency exchange market is complicated business and if you’re not too sure on exchanging money yourself make sure you speak to a foreign currency exchange specialist who can help you get the best deal for your foreign currency.

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