Two entities, currency speculators and international investors, determine foreign exchange rates. Currency speculators trade based on technical or fundamental analysis, or both. The most well-known currency speculator is George Soros, who made billions by shorting the British pound. Currency speculators are, on average, short-term traders betting on their expectations of exchange rate changes. International investors enter the Forex market for hedging. They are more concerned with interest rate differentials. The combination of currency speculators and international investors dictate the changes of exchange rates.
Most currencies are quoted in U.S. dollars, or by U.S. dollars. For example, the Japanese Yen and the British pound are quoted in U.S. dollars, i.e. 1.84 $U.S./bp. This means in exchange for one British pound you receive 1.84 dollars. Alternatively, the euro, the universal currency for most of Europe is quoted by U.S. dollars, i.e. .77 euro/$U.S. For every U.S. dollar you exchange, you receive .77 euros.Beyond the basics of quotation symbols, Forex trading is very complex. First you should know the U.S. dollar is considered the main currency in the world. As such, many foreign countries peg their currencies against the dollar. In others words, they will try to set their countries' exchanges roughly equal to the dollar. They accomplish this through buying and selling the dollar on the Forex.Lastly, trading on the Forex is a round the clock endeavor. At any given point in time, there is a market open for trading currencies. When the U.S. markets close, the Asian markets open, and when they close, the European markets open. Any gap is filled by the opening of Australia's market. You should understand that your positions are always under scrutiny. When you are sleeping, someone is trading somewhere.
