There are a number of options that any investor has when trying to
decide where to invest his/her money. Forex (i.e. the foreign exchange
market) is one of these choices. Just as millions of travelers do every
year when they go abroad, Forex traders are merely exchanging one form
of currency for another. But as most people already know, one dollar of
U.S. currency is not equal to one Euro – there is always a conversion
rate involved in any exchange between currencies.
- Just as with stock prices, the exchange rate between currencies is constantly changing and reacting to market conditions.
- One Euro might be worth 1.300 USD today, but only 1.2518 USD the following day.
- When dealing with currency exchanges, the two currencies being traded are known as the currency pair.
- The base currency is the first in the currency pair and it is used when the account is set up (USD/Euro). So, if an investor was looking at the exchange rate of 1.312 USD when looking at the base pair of the
- Dollar/Euro this means that it takes 1.312 USD to buy one Euro and that the dollar was used to set up this transaction.
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