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The off-exchange forex market is a large, growing and liquid financial market that operates 24 hours a day, 5 days a week. It is not a market in the traditional sense because there is no central trading location or “exchange.”

Most of the trading is conducted by telephone or through electronic trading networks.The primary market for currencies is the “interbank market” where banks, insurance companies, large corporations and other large financial institutions manage the risks associated with fluctuations in currency rates.

The true interbank market is only available to institutions that trade in large quantities and have a very high net worth.

In recent years, a secondary OTC market has developed that permits retail investors to participate in forex transactions. While this secondary market does not provide the same prices as the interbank market, it does have many of the same characteristics.

Forex transactions are quoted in pairs because you are buying one currency while selling another.The first currency is the base currency and the second currency is the quote currency.

The price, or rate, that is quoted is the amount of the second currency required to purchase one unit of the first currency. Currency pairs are often quoted as bid-ask spreads. The first part of the quote is the amount of the quote currency you will receive in exchange for one unit of the base currency (the bid price) and the second part of the quote is the amount of the quote currency you must spend for one unit of the base currency (the ask or offer price).

In other words, a EUR/USD spread of 1.2170/1.2178 means that you can sell one Euro for $1.2170 and buy one Euro for $1.2178.

A dealer may not quote the full exchange rate for both sides of the spread. For example, the EUR/USD spread discussed above could be quoted as 1.2170/78. The customer should understand that the first three numbers are the same for both sides of the spread.

How do I close out a trade?

Retail forex transactions are normally closed out by entering into an equal but opposite transaction with the dealer. For example ,if you bought Euros with U.S. dollars you would close out the trade by selling Euros for U.S. dollars.

Most retail forex transactions are governed according to a settlement date when the currencies are to be delivered. If in case you want to keep your position open beyond the settlement date, it is important that you roll the position over to the next cycle. Some dealers roll open positions over automatically, while other dealers may require you to request the rollover. On most open positions, interest is earned on the long currency.