Foreign exchange (forex) trading is the most liquid financial market globally, where traders buy and sell currencies to profit from price movements driven by economic data, political events, and market trends.
📉 Market Size & Structure
According to the BIS Triennial Survey, average daily turnover in over-the-counter forex markets reached US $7.5 trillion in April 2022, up 14% from three years earlier. Trades are conducted OTC—primarily online—24 hours a day, five days a week.
🏦 Understanding Currency Pairs
Currencies are always traded in pairs. Each pair includes:
- Base currency (first): e.g., in EUR/USD, EUR is the base
- Quote currency (second): e.g., USD
A trader can:
- Go long (buy base/sell quote), expecting the base currency to strengthen
- Go short (sell base/buy quote), expecting it to weaken
How It Works
A quoted rate like EUR/USD = 1.10 means €1 buys US $1.10. A later shift to 1.00 means if you convert $1,100 back to euros, you’d receive €1,100—a €100 gain from a weakening euro.
💱 Bid, Ask & Spread
Quotes include:
- Bid: price broker pays to buy the base
- Ask: price broker charges to sell the base
- Spread = Ask − Bid = trading cost
Example: If EUR/USD is quoted at 1.4745/1.4746, the one-pip spread reflects liquidity and cost.
💵 Top Forex Pairs
Major Pairs
Highly liquid, tight spreads—always include USD:
- EUR/USD – most traded; sensitive to US/EU rate divergence
- GBP/USD – “Cable”; reacts to UK economic events and Brexit-related news
- USD/JPY – influenced by US/JP rate gaps and often used in carry trades; yen is also a safe haven
- USD/CHF – Swiss franc rises in risk-off times; affected by SNB vs. Fed policy
- AUD/USD – “Aussie”; tied to commodity exports and China’s demand
- USD/CAD – “Loonie”; driven by crude oil prices and BoC vs. Fed rate differences
- NZD/USD – “Kiwi”; dairy export economy and RBNZ interest rates
Minor (Cross-Currency) Pairs
Do not include USD, but draw from other major currencies:
8. EUR/GBP – influenced by EU-UK economic and political trends
9. GBP/JPY – highly volatile due to cross-regional dynamics
10. EUR/AUD – mirrors commodity vs. eurozone economic trends
11. GBP/CAD – affected by oil markets and UK economic developments
12. EUR/CHF – reflects sentiment and is sensitive to SNB moves
Exotic Pairs
Feature a major currency and an emerging-market currency, with higher volatility and wider spreads:
13. USD/SGD – influenced by Singapore’s managed exchange rate policy
14. USD/HKD – peg to USD; HKMA may intervene during market turbulence
15. EUR/TRY – volatile due to Turkey’s economic risks and political uncertainty
16. GBP/ZAR – affected by South Africa’s commodity exports and rand fluctuations
🧭 Getting Started in Forex
- Learn to read quotes and currency structure
- Understand market drivers: interest rates, commodities, geopolitics
- Use risk management techniques and reliable trading tools
- Choose a trustworthy platform with education, analysis, and real-time data
Understanding these fundamentals—including how pairs are structured, the role of bid/ask spreads, and economic influences—lays the foundation for effective forex trading. Let me know if you’d like more detail on any specific pair or strategy
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