Foreign Currency Exchange Market

Foreign Currency Exchange Market

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The foreign currency exchange market or just Forex is one of the biggest financial markets in the whole world. As the name implies, this is the market where traders will exchange one’s currency with another currency from another country for a specific rate.

Foreign Currency Exchange – Basic Information

The rates of a currency can change at any given time. And the trader uses the change in the rates to get the profit.

They get a profit when they buy the currency at a lower price and sell it back when the price is going up. Traders will gain from the foreign exchange rate between the two countries.

That is the basis of the foreign currency exchange market and it is different from another market in the trading world.

Compare to other trading markets such as options, futures and stock, the foreign currency exchange market is unique because it doesn’t take place on a regulated exchange.

It means that there is no one who controlled it, either clearinghouses or arbitration panels as the governing body in the market.

The whole transaction based on credit agreements, thus makes it one of the most liquid markets in the whole world.

Foreign Currency Exchange – Market Information

This foreign currency exchange market operates 24 hours a day from Sunday to Friday. And it has such a large scope that spread from Europe, North America to Asia.

With such a large area, the trader is not limited to trade in a specific area only.

They are allowed to trade on any currency pair, with no limits on the size they want to trade as long as they have the capital to do it.

And there are no uptick rules in the foreign currency exchange market just like the one that people can find in the stock market.

Trader Behavior

In the foreign currency exchange market, there is no physical exchange of the currencies that ever take place, at least for those who play it big.

It means that the big players in the foreign currency exchange market usually do the trade on the computer and every single trade only recorded in the trader’s account and netted out in the market.

The trader won’t have the currency or the money in their hand, but they will get a real consequence, either they get profit or loss the money.

Favorite Currency Pair

As it said before, the scope of this foreign currency exchange market is so huge. It covers basically every single country in the whole world.

But, there are currency pairs that become the favorite for many traders. Which include four major currency pair and three major commodity pair and they are:

  • EUR/USD (Euro and US Dollar)
  • USD/JPY (US Dollar and Japan Yen)
  • GBP/USD (British Pound and US Dollar)
  • USD/CHF (US Dollar and Swiss Franc)
  • AUD/USD (Australian Dollar and US Dollar)
  • USD/CAD (US Dollar and Canadian Dollar)
  • NZD/USD (New Zealand Dollar and US Dollar)

Crosses Pair

Surely there are other currency pairs that also traded in the foreign currency exchange market.

As an example, there are currency pairs called “crosses pair”. They are those pairs that are not paired with the US Dollar such as:

  • AUD/CAD (Australian Dollar and Canadian Dollar)
  • AUD/CHF (Australian Dollar and the Swiss Franc)
  • AUD/NZD (Aussie Dollar and New Zealand Dollar)
  • EUR/AUD (Euro and Australian Dollar)
  • EUR/CAD (Euro and Canadian Dollar)
  • EUR/CHF (Euro and Swiss Franc)
  • EUR/GBP (Euro and British Pound)
  • EUR/NZD (Euro and New Zealand Dollar)
  • GBP/AUD (British Pound and Australian Dollar)
  • GBP/CHF (British Pound and Swiss Franc)

However, the seven pairs mention before dominated the market up to 95%. And only 5% that goes for another pair.

That is the basis of the foreign currency exchange market that every trader needs to know. This helps them prepare better before entering this liquid market.