4. The Basics of Foreign Exchange

All Forex investors must master the basic structure and vocabulary of the market before they trade. This chapter introduces and explains some of the basic investing tools and the way they work.


A spot or Forex transaction is the most basic exchange in the foreign exchange market. It is simply the exchange of one currency for another. Every Forex trade consists of two simultaneous transactions: a buying of one currency and a selling of another. That's why it is called a spot or cash transaction. Technically all transactions have a two-day settlement, except for Canadian transactions, which have a one-day settlement.

For example, one trader exchanges $1 with another trader for 105 yen, just as an American ...

Get Forex Revolution: An Insider's Guide to the Real World of Foreign Exchange Trading now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.