Foreign exchange (also known as forex or FX) refers to the global, over-the-counter market (OTC) where traders, investors, institutions and banks, exchange speculate on, buy and sell world currencies. Trading is conducted over the ‘interbank market’, an online channel through which currencies are traded 24 hours a day, five days a week. Forex is one of the largest trading markets, with a global daily turnover estimated to exceed US$5 trillion.
Forex trading is the act of buying or selling currencies. Banks, central banks, corporations, institutional investors and individual traders exchange foreign currency for a variety of reasons, including balancing the markets, facilitating international trade and tourism, or making a profit.
Currency is traded in pairs, in both spot and futures markets. The value of a currency pair is driven by economic, political and environmental factors, such as wars, natural disasters, or national elections.
Brokers act as intermediaries, facilitating trades by providing clients access to the 24-hour interbank in order to conduct trades. HNTFXPRO offers a number of different accounts, each providing services and features tailored to our clients’ individual trading objectives. Discover the account that’s right for you on our account page. New to forex trading? Learn about the markets by opening a demo account page.
All transactions made on the forex market involve the simultaneous purchasing and selling of two currencies. These are called ‘currency pairs’, and include a base currency and a quote currency. The display below shows the forex pair EUR/USD (Euro/US Dollar), one of the most common currency pairs used on the forex market.
There are seven Major currency pairs on the forex market. Other brackets include Crosses and Exotic currency pairs, which are less commonly traded and all relatively illiquid (i.e., not easily exchanged for cash).
Major pairs are the most commonly traded, and account for nearly 80% of trade volume on the forex market. These currency pairs could typically have low volatility and high liquidity. They are associated with stable, well managed economies, are less susceptible to manipulation and have smaller spreads than other pairs.
Cross currency pairs – Crosses – are pairs that do not include the USD. Historically, Crosses were converted first into USD and then into the desired currency, but are now offered for direct exchange. The most commonly traded are derived from Minor currency pairs (eg. EUR/GBP, EUR/JPY, GBP/JPY); they are typically less liquid and more volatile than Major currency pairs.
Exotics are currencies from emerging or smaller economies, paired with a Major. Compared to Crosses and Majors, Exotics are much riskier to trade because they are less liquid, more volatile, and more susceptible to manipulation. They also contain wider spreads, and are more sensitive to sudden shifts in political and financial developments.