Forex

The foreign exchange market (FX) as a whole, consists of many types of markets, including Spot FX, Future derivatives, Forward Derivatives, and finally the CFD derivatives market, which is the most popular for retail clients. All forex trading transactions combined make up the largest and most liquid financial market, with an average daily volume of over $5 trillion. In forex trading, spot price of a currency pair is influenced by several factors, such as the economic outlook and geopolitical events in that region, as well as news data releases which may be perceived positively or negatively by the market.

It is worth mentioning that the spot FX market is also an OTC market dominated by the large international banks.

Currencies are always traded in pairs, with the first currency in the pair called the base currency and the second called the quote currency. Forex traders simultaneously buy one currency in the pair and sell the other, depending on how they think the currencies’ values will change in relation to each other.

Currency values can be affected by a vast number of fundamental factors that impact the health of a nation’s economy, including inflation, interest rates, government debt levels and political stability. Typically, forex investors find the greatest volatility before and after key economic or political announcements as traders speculate on their potential impact.

Currency pairs are split into three categories. Major currency pairs are the most traded pairs in the forex industry and therefore enjoy the most liquidity. They usually include the US dollar as one half of the pair, like the EUR/USD and the USD/JPY. Other commonly traded major pairs include EUR/JPY and the EUR/GBP.