How forex trading works

Before we dig into the details, let’s take a look at a simplified forex trade as an example.

Trading EUR/USD

You believe that the value of the euro will rise against the US dollar, because the EU reported strong economic growth.

So, you buy EUR/USD, meaning you’re buying euros while selling the US dollar.

Understanding currency pairs

Forex is always traded in currency pairs, such as AUD/USD. This is because a currency cannot be speculated against itself; its value is always in relation to another currency.

But why does the AUD/USD pair look the way it does?

Every currency in forex trading is signified by three letters. These are known as the ISO 4217 Currency Codes.

The first two letters denote the country. The third represents the currency name.

• AUD = Australia dollar
• USD = United States dollar