The foreign exchange market is an over-the-counter (OTC) marketplace that determines the exchange rate for global currencies. An exchange rate is the price of the base currency expressed in terms of price currency. For example, a USD/EUR rate of 1.1650 means the Euro, the base currency, costs 1.1650 US dollars which is price currency.

Currencies are always traded in pairs, so the “value” of one of the currencies in that pair is relative to the value of the other. This determines how much of country A’s currency country B can buy, and vice versa. Establishing this relationship (price) for the global markets is the main function of the foreign exchange market. This also greatly enhances liquidity in all other financial markets, which is key to overall stability.

Currencies are quoted in bid-ask spread which depends on interbank foreign exchange market, size of transaction and relation between dealers and clients

Benefits of Using the Forex Market

• There are fewer rules, which means investors aren’t held to the strict standards or regulations found in other markets.
• There are no clearing houses and no central bodies that oversee the forex market.
• Most investors won’t have to pay the traditional fees or commissions that you would on another market.
• Because the market is open 24 hours a day, you can trade at any time of day, which means there’s no cut-off time to be able to participate in the market.
• Finally, if you’re worried about risk and reward, you can get in and out whenever you want, and you can buy as much currency as you can afford based on your account balance and your broker’s rules for leverage.