Because of the immense volume of the Forex market, it is impossible for a single market’s force to noticeably control the market direction for any considerable length of time. At the end, market forces will prevail in the long run, making forex one of the most open and fair investment opportunities available.
Currency prices in the Forex markets are determined by a great number of factors influencing the value of the currency. Among the most important factors to consider are the economic and political conditions in the home country of the currencies you are willing to trade. Inflation, political stability, and interest rates are all highly considered for determining the price of any currency. Additionally, governments may try to establish some kind of control over the price of their currency by either intentionally flooding the market, to lower the price; or buying large quantities, to raise the price.
The first thing you should know for correctly reading currency quotes is that each world currency is given a three letter code which is used in forex quotes. The most common currencies for traders are: European euros (EUR), US dollars (USD), United Kingdom pounds (GBP), Australian dollars (AUD), Japanese yen (JPY), Swiss francs (CHF) and Canadian dollars (CAD).
Other important thing to learn is that the foreign exchange prices when trading forex are indicated by quotes in a fraction like mode, called currency pairs. The first currency is called the 'base' and the second is called the 'quote' currency. In the following example: USD/EUR = 0.8517
This currency pair is formed by US dollars and European euros. The base currency (USD) is always considered ‘1’ and the quote currency shows how much it costs to buy one unit of the base currency. In this example, 1 US dollar costs 0.8517 euros.
If the price of the quoted currency goes up it will indicate that the base currency is becoming stronger; one unit of the base currency will buy more of the quote currency. If the quote currency falls, however, that means that the base currency is becoming weaker.
As you examine the data of any trading software you may be using, you will notice that forex quotes are seen in a 'bid' and 'ask' prices format. What ‘Bid’ means is the price that buyers will pay for the base currency, while at the same time selling the quote currency, and ‘Ask’ is the price at which the sellers will sell the base currency, while at the same time buying the quote currency.