Lesson 2.How The Forex Market Works.

The foreign exchange (forex or FX) market is the global marketplace where currencies are bought and sold. It’s the largest financial market in the world, with over $7 trillion traded daily.

Here’s how it works in simple terms:

 Currencies are traded in pairs

You never buy just one currency—you exchange one for another.

Examples:

• EUR/USD = Euro vs. US Dollar
• GBP/USD = British Pound vs. US Dollar
• USD/JPY = US Dollar vs. Japanese Yen

If EUR/USD = 1.20, it means:

• 1 Euro = 1.20 US Dollars

 Why exchange rates change

Currency prices move because of supply and demand. Factors that affect them include:

• Interest rates
• Inflation
• Economic growth
• Employment data
• Political events
• Central bank decisions
• Market sentiment

For example:

• If the U.S. Federal Reserve raises interest rates, investors may buy more U.S. dollars, causing the USD to strengthen.