Most people have heard of the foreign exchange market, also referred to as the forex market, but do not know exactly how it works, or how people are making money from it. It is a place where the world’s currencies are openly traded. An amazing fact about the forex market is that nearly a trillion every day in volume is being traded. The rate of volume traded daily is expected to grow as more and more investors become interested and knowledgeable about the foreign stock exchange market.

Unlike the stock market, currencies are traded over the counter not in a central marketplace. The decentralized market allows greater opportunities for traders to be able to choose from a selection of different dealers, dealers who can make trades and offer a variety of prices. All trades involve the purchase of a single currency while selling of another simultaneously. In the foreign exchange market the value of one country’s currency is set by comparing it to another country’s currency.

How the rates of exchange are determined between currencies is easily explained. The currency under consideration, the first currency, is called the ‘base currency’ of a currency pair. The second currency of a currency pair is called the counter currency. When the base currency is being bought it will be displayed how much of the counter currency will be needed to buy each single unit, of the base currency.

When buying and selling a currency pair you need to understand that the while a country’s base currency is being purchased, the country’s counter currency’s is being sold. Some of the most traded currency pairs most often traded on the forex market includes the USD/JPY, GBP/USD, EUR/USD and the USD/CHF. New and interested traders can learn more about forex trading by taking advantage of many of the free trading demo accounts found online.

Many currency trading firms offer these kind of free demo accounts as a great way to get new interested investors to sample how the market works. It is very easy to register for a free demo account and it is a very valuable tool to learn the ins-and-outs of the foreign exchange market.