Currencies are traded against each other in most heavily traded forex pairs by volatility form of currency pairs. Exchange rate is called the exchange price between two currencies. 50, this means that with 1 euro, you can get 1.
Stakeholders buy and sell currencies in real time and continuously. Before 1944, it was impossible to buy the dollar against the euro. Then, in 1944 there was the Bretton Woods conference in order to ensure economic stability after war. Exchange rates were moving only if a state decides to devalue or revalue its currency by acting with its foreign exchange reserves.
Technically, a currency could be challenged in the foreign exchange market if the price was too high or too low. The Bank of England did not have enough foreign exchange reserves to maintain its fixed exchange rate was forced to devalue its currency. 1 billion on this transaction and was dubbed “the man who broke the Bank of England. The price of a currency against another currency on the Forex is now a balance between supply and demand of the various stakeholders for a particular currency. Funds that are key players in the Forex. Forex is a highly liquid market.
Forex is not a physical market, you treat that money. It’s not like on the equity market or when you buy a stock, you own shares of the company. For ease of understanding, think buying one currency is like buying a share of a country. So your “action Euro Zone” will appreciate against the “American action” and you will have earned money.
It is important to note that Forex, most transactions are from speculation. Of course, some operations are needed to corporations, financial institutions and central banks in order to hedge or arbitrage but in smaller proportions. This is also the reason for the high liquidity in Forex. Why Forex Traders prefer to other financial markets? How do they pay themselves so you tell me? Well they are remunerated only through the spread unlike brokers actions that will charge you in addition to transaction costs, custody or account maintenance fees.