How to Forex or Trade the Currency Exchange Rates
- The Commodity Futures Trading Commission (CFTC) authorizes exchanges to trade forex futures and options on forex futures. These trades are centrally managed futures contracts and options on futures contracts that provide their users with liquidity for their transactions. Although it is possible to trade here this is not the market addressed on this website.
- The Securities and Exchange Commission (SEC) also authorizes exchanges to trade forex futures and options on forex futures. Their transactions are very similar to those of the CFTC. It is also possible to trade the Forex on these exchanges but again this is not the market that most individuals self trade their personal accounts.
- The “Over the Counter” or “off-exchange” market is where the retail forex customer generally executes trades. A retail customer executes trades directly with a counterparty and there is no exchange or central clearing house overseeing the transactions. Off exchange transactions are not as regulated as the markets stated above.
The off-exchange market is the market addressed on this website and numerous other websites, blogs, and articles. It is a huge, liquid, growing financial market that is open 24 hours a day. The vast majority of trading is conducted telephonically or through electronic means.
The primary off exchange market is called the “interbank” market and it is conducted between banks, insurance companies, large corporations, and other large financial institutions. These transactions are conducted to manage risk involved with fluctuations in currency rates.
The secondary off exchange market evolved to let retail investors (like you and me) participate in forex trades. It has many of the same characteristics as the “interbank” market.
How are Currencies Quoted and Priced?
Currencies are identified by three letter symbols:
- USD United States Dollars
- CAD Canadian Dollars
- EUR European Euros
- GBP British Pound
- JPY Japanese Yen
- AUD Australian Dollar
- CHF Swiss Franc
You may have noticed that Forex transactions are always quoted in pairs. That is because you are buying one currency while selling another. The first currency in the pair is the base currency and the second one is the quoted currency.
The quoted currency is the price or rate quoted required to buy one unit of the base or first currency. An example would be the EUR/USD pair has a asking price of 1.2237. What that means is that you can buy one Euro for 1.2237 US dollars. This was a short course on “how to forex“. We hope you found it useful.