The Forex market (from English FOReign EXchange – foreign exchange) is an international interbank market for currency exchange that emerged in 1976 to replace the Bretton Woods currency system, where quotes form freely without restrictions. Daily turnover on Forex reaches several trillion dollars.
Typically, the term Forex market refers specifically to currency exchange transactions rather than all operations occurring on the market.
Core Principles of the Forex Market
The Forex currency market operates on the principle of free currency exchange, meaning no government intervention in deals (no official exchange rates, no limits on direction, prices, or trade volumes).
This is its main and most attractive difference from stock markets. However, certain rules apply to brokerage services, governing relationships between clients (traders) and intermediaries (brokers).
Today, all Forex operations occur through central, commercial, and investment banks, brokerage firms and dealers, pension funds, insurance companies, and other financial institutions.
Which Currencies Trade on Forex?
The primary currency on the Forex market is the US dollar (USD). Major currency pairs include the US dollar against the euro (EUR/USD), British pound (GBP/USD), Japanese yen (USD/JPY), and Swiss franc (USD/CHF). Most other world currencies also trade against the US dollar, but cross rates—pairs without the USD—are also highly popular on Forex.
- More about cross currency rates on Forex
Additionally, Forex offers trading in gold, silver, oil, and other assets priced in US dollars.
What Are Currency Quotes on Forex?
Currency quotes or rates on the Forex market represent the value of one currency expressed in units of another. Since the US dollar is the primary currency on Forex, other currencies’ values are quoted in USD.
- More about currency quotes on Forex
What Are Currency Pairs on Forex?
Currency pair is the main Forex instrument, showing a currency quote in standard bank currency codes. The base currency is on the left, the quote currency on the right.
Currency pair EUR/USD
For example, the EUR/USD pair means the euro (base currency) price in US dollars (quote currency). A quote of 1.1143 indicates 1 euro equals 1 dollar and 11.43 cents at that moment.
- More about currency pairs
How to Start Trading Forex
Access to Forex trading comes via Forex brokers, dealing centers, and commercial banks. Trades execute through the broker’s client terminal. The most popular platforms are MetaTrader 4 and MetaTrader 5. Forex trading typically uses margin trading (with collateral).
- More about Forex brokers
- More about MetaTrader 4 terminal
- More about MetaTrader 5 terminal
- More about margin trading
FAQ
What is the daily turnover of the Forex market?
Several trillion dollars trade daily on Forex, making it the world’s largest and most liquid financial market.
What are the major Forex currency pairs?
Key pairs include EUR/USD, GBP/USD, USD/JPY, and USD/CHF, with most trades involving the US dollar as the primary currency.
How do I start Forex trading?
Open an account with a Forex broker, download MetaTrader 4 or 5, and use margin trading through their client terminal.
