The spot market adds up to about one-third of worldwide forex market. You might paint a broad picture as follows:

The interbank market in which the world’s currencies are traded and settlement happens within two business days.

The retail market is comprised of individual traders, who participate in the market via telephone or over the internet through brokers. Contrary to what many believe, the forex market does not have central exchange. Each trades is an over-the-counter transaction, transacted by two parties who know each another. Another interesting aspect is that the forex market is global in nature and is “open” for 24 hours per day, Monday through Friday. Each day’s trading begins in in the city of Wellington, New Zealand and continues through to Sydney, Tokyo, Hong Kong, Singapore, Bahrain, Frankfurt, Geneva, Zurich, Paris, London, New York, Chicago and Los Angeles.

Each forex transaction is simply an exchange of one currency for another. Each of the traded currencies are abbreviated with a special three-digit International Standardisation Organisation (ISO) code. For example, GBP is used to represent the sterling and the US dollar by the symbol. A currency pair is expressed bythe ISO codes, sandwiching a division symbol (for example, GBP/USD). The first abbreviation represents the “base currency” and the second, the “secondary currency”.

It’s not difficult to figure out the exchange rate, which is merely the value of a given currency in terms of another currency. As an example GBP/USD = 1.4565 indicates the fact that a single unit of sterling (which is the base currency) may be traded for 1.4565 US dollars (the secondary currency). What is the base currency? It is the currency that you are either buying or selling. This basic idea is not always clear to people beginning forex trading.

Currency exchange rates are normally carried out to four decimal places. One exception is the Japanese yen, which is limited to two decimal places. The first two of the four decimal places is called the “big figure”, and the third and fourth integers are collectively called “points” or “pips”. In our prior example, namely GBP/USD = 1.4565, the “big figure” is 1.45 while the 65 (remember, the third and fourth decimal places) are the points or pips.

Just as in the case of other financial commodities, there is always a buying price (also known as the “offer” or “ask” amount) and also a selling price (also known as the “bid” price). The variance between the two is called the “bid-offer spread” or more simply, “the spread”.

The forex spot market is huge and it is well worth your time to investigate whether you want to be a part of it.