In the world of forex trading, you can earn profits or losses depending on the price of a currency. A trader can buy a currency at a certain price and then sell it at a higher price at a later date. The process is called hedging. It can be a good option if an American company has operations in Europe and wishes to protect its income by selling its currency at a later date.
The foreign exchange market (forex) is a global marketplace where banks and other institutions trade national currencies. The exchange rate is based on the price of the base currency, which is always the first one quoted. The quote currency is the second currency, which can be bought or sold by a trader. The price of a currency pair is determined by its bid price, which is typically the leftmost part of the quote and usually displayed in red.
The foreign exchange market is open 24 hours a day, five days a week. Trading takes place over the counter, which means there is no central exchange. The vast majority of trading occurs between institutional traders. These traders do not intend to take physical possession of the currencies they buy or sell. Instead, they are hedging against the possibility of a future exchange rate drop. This means that it is essential to learn the basics of forex trading before you enter the market.