A:

Investors can trade almost any currency in the world. Investors, as individuals, countries, and corporations, may trade in the forex if they have enough financial capital to get started and are astute enough to make money at it. How someone makes money in the forex is a speculative process: you are betting that the value of one currency will increase relative to another.

Currencies are traded, and priced, in pairs within the forex. For example, you may have seen a currency quote for a EUR/USD pair of 1.2131. In this example, the base currency is the euro and the U.S. dollar is the quote currency. In all currency quote cases, the base currency is worth one unit, and the quoted currency is the amount of currency that one unit of the base currency can buy. So, in this example, one euro can buy 1.2131 U.S. dollars. How an investor makes money in forex is by either an appreciation in the value of the quoted currency, or by a decrease in value of the base currency. (For an overview of foreign exchange, read A Primer On The Forex Market.)

Another way to look at currency trading is to think about the position an investor is taking on each currency in the pair. The base currency can be thought of as a short position because you are "selling" the base currency to purchase the quoted currency, which can be seen as the long position on the currency pair. In our example above, we see that one euro can purchase \$1.2131 and vice versa. To purchase the euros, the investor must first go short on the U.S. dollar in order to go long on the euro. To make money on this investment, the investor will have to sell back the euros when their value appreciates relative to the U.S. dollar. For example, assume the value of the euro appreciates to \$1.2141 - on a lot of \$100,000 the investor would gain US\$100 (\$121,410 - \$121,310) if he or she sold the euros at this exchange rate. Conversely, if the EUR/USD exchange rate fell by 10 pips to \$1.2121, then the investor would lose US\$100 (\$121,210 - \$121,310).

RELATED FAQS
1. ### How is spread calculated when trading in the forex market?

First, remember that in the forex markets investors trade one currency for another. Therefore, currencies are quoted in terms ... Read Answer >>
2. ### What am I buying and selling in the forex market?

The forex market is the largest market in the world. According to the Triennial Central Bank Survey conducted by the Bank ... Read Answer >>
3. ### How can I trade in cross currency pairs if my forex account is denominated in U.S. ...

The forex market allows individuals to trade on nearly all of the currencies in the world. However, most of the trading is ... Read Answer >>
4. ### What is the value of one pip and why are they different between currency pairs?

In forex markets, currency trading is done on some of the world's most powerful currencies. The major currencies traded are ... Read Answer >>
5. ### Why is currency always quoted in pairs?

When reading currency quotes, you have probably noticed that there is only a single quote for a pair of currencies. Currency ... Read Answer >>
6. ### Why is the U.S. dollar shown on the top of some currency pairs and on the bottom ...

All currencies are traded in pairs. The first currency in the pair is called the base currency while the second is called ... Read Answer >>
Related Articles

### How Do You Make Money Trading Money?

Making money in the foreign exchange market is a speculative process. You are betting that the value of one currency will increase relative to another.

### The Forex Market: Who Trades Currency And Why

The forex market has a lot of unique attributes that may come as a surprise for new traders.

### The 6 Most-Traded Currencies And Why They're So Popular

Every currency has specific features that affect its underlying value and price movements in the forex market.

### Top 5 Reasons To Invest In Currencies

Here's why you should get into the forex market.

### Forex Trading: A Beginner's Guide

Learn about the forex market and some beginner trading strategies to get started.

### Understanding Forex Quotes

When trading in forex, all currencies are quoted in pairs. Find out how to read these pairs and what it means when you buy and sell them.

### What Is A Pip?

Learn how this measure of change is used in trading currencies on the forex market.

### How To Trade Forex Right Now

With the expected continued world volatility in the near future, there is a lot of money to be made in the forex market. How can you make the most of it?

### Economic Factors That Affect The Forex Market

Knowing the factors and indicators to watch will help you keep pace in the competitive and fast-moving world of forex.
RELATED TERMS
1. ### Currency Pair

The quotation and pricing structure of the currencies traded ...
2. ### Currency Pairs

Two currencies with exchange rates that are traded in the retail ...
3. ### Quote Currency

The second currency quoted in a currency pair in forex. In a ...
4. ### Base Currency

The first currency quoted in a currency pair on forex. It is ...
5. ### Currency Appreciation

An increase in the value of one currency in terms of another. ...
6. ### Currency Pair: EUR/USD (Euro/U.S. Dollar)

The abbreviation for the euro and U.S. dollar (EUR/USD) pair ...
Hot Definitions
1. ### Nonfarm Payroll

A statistic researched, recorded and reported by the U.S. Bureau of Labor Statistics intended to represent the total number ...
2. ### Conflict Theory

A theory propounded by Karl Marx that claims society is in a state of perpetual conflict due to competition for limited resources. ...
3. ### Inflation-Linked Savings Bonds (I Bonds)

U.S. government-issued debt securities similar to regular savings bonds, except they offer an investor inflationary protection, ...
4. ### Peak Globalization

Peak globalization is a theoretical point at which the trend towards more integrated world economies reverses or halts.
5. ### Phishing

A method of identity theft carried out through the creation of a website that seems to represent a legitimate company. The ...
6. ### Insurance

A contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an ...