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Before we go into the details of the forex market you should familiarize yourself with basic forex terms. In this article we will concentrate on three very important concepts related to forex market: trading hours, trading pairs and leverage. Here is a complete list of forex market terms and terminologies.

Trading Hours

The forex market is a virtual market. So, it is not bound by geographical borders and is a global market. The market hours at different locations across the globe overlap with one another. So, even when market is closing at one place there is a open market at another place. As the market is always open at some place or other trades can happen at any time of the day. However, the market remains close during the weekend from Friday 21:00 GMT to Sunday 21:00 GMT.

Trading Pairs

Trading pair is basically the pair of currencies which are traded. The traders can buy or sell the first currency using the second currency. The former is called base currency while the later is called quote currency. Let’s take an example to understand this. We will use EUR/USD for this example. EUR (i.e. Euro) is the first currency or base currency and USD (US Dollar) is the second currency or quote currency. So, the trader will be buying or selling Euro (i.e. the base currency) using USD (i.e. the quote currency).

Leverage

Leverage is one of the most important concept that you will be using in Forex market. It is basically a loan given to the trader by the broker. This helps the trader to trade higher volumes. To calculate your leverage you need to multiply the amount you want to trade by the leverage allowed by the broker. A leverage of x:y means x dollar traded by you will be matched by y dollars. Similarly the broker will match 50 dollar with every 1 dollar you trade if the leverage allowed is 50:1. Let’s take an example for easier understanding. Suppose your broker allows a minimum balance of $100 and leverage of 50:1. This means you can trade ($100×50) = $5,000.

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The European nations were not very happy to remain dependent on dollar and hence they formed the Smithsonian Agreement and the European Joint Float. These agreements allowed a wider range of fluctuations for the currencies than the Bretton Woods Accord. But both of these systems failed paving way for the free-floating systems.

Now, currencies were able to fluctuate freely as there were no pegs set for them. In the forex market traders use these fluctuations of currencies to make by buying currencies at lower rate and selling at higher rates. Traders study the pattern of changes of currency over a period of time, take into consideration other economic factors affecting the currency and based on that estimate future fluctuations of the currency. These analysis and estimate helps them to buy and sell currencies at right prices and thus earn lucrative profits.

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