Introduction To Forex Rates
Written by Sarah Martin
What Are Forex Rates?
A Forex rate is the term commonly used to denote the rate one currency is exchanged for another. This relates to the fact currencies are always traded in pairs in Forex. Common Forex pairs are the US Dollar and the British Pound (USD/GBP), the US Dollar and the Euro (USD/EUR) and the Canadian and Australian Dollars (CAD/AUD). Forex trading, at heart, involves the simultaneous selling of one currency as another is bought. The Forex rate describes the rate at which this transaction is executed.
Liquidity and Forex Rate Changes
Forex has long been the most-liquid market in the world. It is open 24/5 – it is closed over the weekends – and is an Over-The-Counter (OTC) market. This lack of a central exchange means that trading can occur from around the world at any time during the day. This, combined with the large number of actors in Forex, means the volumes traded often far exceeds that of trading in other markets, such as the stock markets.
The effect of this high liquidity and 24/5 nature is that Forex rates can fluctuate significantly over time. The dynamism of Forex is such that Forex rates can change many times even within a time span of a few minutes. The main advantage of this is that potential profits can be larger if the Forex rate applicable to your particular currency pair moves increasingly in your favour.
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