Forex Trading: Definition, How It Works, Effect on Dollar

Posted on at

There is no such person who has never heard of Forex trading. However, few know that it is trading on differences in exchange rates and is usually one of the most perspective types of financial transactions that you can avail of today. Forex trading works accordingly. The Forex rate is updated almost every minute, which provides you with endless opportunities for dynamic and profitable trading 24/7. 

As a rule, the main factors that have a direct influence on the state of the Forex market are the macroeconomic indicators of the world's leading economic giants, such as the USA, Canada, Germany, Japan, etc. Therefore, up-to-date economic information becomes fundamentally important for successful Forex Philippines trading. Another significant factor is the technical analysis of currency rate fluctuations, which directly influences the formation of Forex forecasts.

Image credit:


How Currencies Are Traded on the Forex Market?

All Forex trading operations are based on the principle of currency pair rate alteration (for example, EUR/USD; EUR/GBP; USD/GBP; etc.). You can react to the dynamics of mutual currency rates. For example, in the “US dollar vs Euro” transaction, the EUR/USD currency pair is used. In this case, the first is the base currency, while the latter is the quote currency. For example, EUR/USD 1.7500 means that 1 EUR = 1 Dollar 75 cents.

Traditionally, pairs of currency used in the Forex market are conventionally split into several groups:

  • Currency pairs with the base currency being national units, and the US dollar being the quote currency in the pair (these are the examples: EUR/USD, GBP/USD, AUD/USD, NZD/USD, etc.);
  • Currency pairs with the base currency being national units, and the Japanese yen being as the quote currency (these are the examples: USD/JPY, EUR/JPY, GBP/JPY, AUD/JPY, etc.);
  • Currency pairs with the base currency being national units; the quote currency doesn’t matter in the pair (here are the options: USD/CHF, EUR/CHF, GBP/CHF or USD/CAD, EUR/CAD, GBP/CAD, etc.).

Image credit:


The currencies used in each of the above groups are called allied currencies against, the US dollar, the Japanese yet, or any other unit that is set as the quote currency. 

In total, more than 70 currency pairs are used on the Forex market. It involves US dollars, Euros, Swiss francs, British pounds, Japanese yen, Australian dollars, New Zealand dollars, Canadian dollars, SA rand, Singapore dollars, Mexican pesos, Israeli shekels, Norwegian, Swedish, and Danish kroner, etc. The most popular currencies that most traders use for transactions are US dollars, British pounds sterling, Euros, and Yen. But it is always up to you what monetary unit to trade in.

About the author