What Currency is Forex?

Instead of asking what currency forex is, it is more correct to say that forex refers to the market where currencies are exchanged daily. In other words, forex is short for the foreign exchange market, one of the biggest financial markets in the world.

What is forex trading?

The foreign exchange market (also known as forex or FX) is the global marketplace for currency and currency derivatives trading. In simple terms, forex trading involves the exchange of currencies. Since 2022, the forex market’s average daily turnover reached $7.5 trillion.

A forex pair consists of the base currency and the quoted currency. For example, in the EUR/USD pair, the euro is the base currency, and the US dollar is the quoted currency. When trading FX, you try to determine how much of the quoted currency (listed on the right) is needed.

This allows you to buy one unit of the base currency (listed on the left). You are buying and selling one currency for another simultaneously.

Trading hours

The foreign exchange market is open 24 hours a day, beginning Monday at 5:00am Australian Eastern Standard Time (AEST) until Friday at 5:00pm Eastern Standard Time. The value date of open spot positions rolls to the next business day at 5:00 pm Eastern Standard Time. New Zealand Dollar pairs are an exception to this.

For example, for the NZD/USD FX Forwards and any cross-currency FX Forward with a NZD leg. The value date roll forward time is 7 AM Auckland time. For those cross currency FX Forwards that don’t include the NZD, the value date roll forward time is 5pm NY time.

This means the local time of the value date rollover changes throughout the year. It depends on the currency pair, counterparty location, and daylight saving time conventions.

如何进行外汇交易?

In forex trading you are buying one asset for another. The current exchange rate or price of a currency pair shows how much of one currency is needed to buy one unit of another currency.

In forex, currency abbreviation is based on the ISO (International Organisation for Standardisation) codes. These 3-letter codes are used when representing a currency pair so that traders can identify the letters as the specific currency pair.

When a trader buys a currency pair, they do so because they expect the price to rise. They believe the base currency will increase relative to the quoted currency.

If they decide to sell a currency pair, it means they anticipate the price will weaken. They expect the base currency to drop against the quoted currency.

What is a currency pair?

A forex currency pair consists of two currencies, which make a pair. When you select to trade a forex pair, you will find that one currency is listed before the other, e.g., EUR/USD.

The first currency is the “base currency” and the second currency is called the “quoted currency”. As mentioned before, the price of a currency pair is how much of the quoted currency is needed to buy one unit of the base currency.

Major currency pairs

One of the big differences between the forex market and equity market is the number of instruments you can trade since there are a limited number of forex pairs compared to the thousands of stocks in the equity markets.  

There are around 180 different currency pairs but traders tend to focus on trading just 8 different currency pairs known as the “majors”. Beginner traders tend to focus on major pairs as they are very liquid. This means that they can easily buy and sell them, and that the prices you can buy and sell them for tend to have very small gaps between them.

The “minor” forex currency pairs, on the other hand, may have bigger gaps between the two prices, which suggest they are more volatile and that their prices fluctuate more.  This kind of volatility suggests that there are fewer buyers and sellers in the market.

Minor forex pairs have also wider or bigger “spreads” between buy and sell prices, as sellers and buyers are reluctant to lower the selling price or bid more, respectively.

So if there are big gaps between the buy and sell price, then the price must move more for your forex trade to provide you with any substantial rewards.

The major currency pairs (or majors) include:

• EUR/USD (Euro/US dollar), Nickname: Fiber
• USD/JPY (US dollar/Japanese yen), Nickname: Gopher
• GBP/USD (Pound/US dollar), Nickname: Cable
• USD/CHF (US dollar/Swiss franc), Nickname: Swissie
• AUD/USD (Australian dollar/US dollar), Nickname: Aussie
• USD/CAD (US dollar/Canadian dollar), Nickname: Loonie
• EUR/JPY (Euro/Japanese yen), Nickname: Yuppy
• EUR/GBP (Euro/pound), Nickname: Chunnel
• XAU/USD (Gold/US dollar), Nickname: Gold forex

What is leverage and margin in FX?

When you trade forex, you have access to leverage or trading “on margin”. Leverage means that you have the ability to deposit a small percentage of the total trade value to open a position in the market. You basically deposit a small percentage of the capital and you borrow the rest from your broker to gain greater market exposure.

However, you need to remember that leverage carries a significant risk and if you are starting out as a beginner, it is perhaps a good idea to use low leverage and minimise your risk by using risk management strategies.

Advantages of trading forex

Since the forex market is open 24 hours a day, 5 days a week, you can quickly respond to market movements and trade on macroeconomic events. The FX market is liquid with a large number of participants, which means spreads are thin and, consequently, costs lower.

Disadvantages of trading forex

Lacking an understanding of how high volatility  and leverage work, you may lose more than you can afford. Before you begin trading you should consider your tolerance for risk, your time horizon, and your goals.

Are there risks with trading currencies?

As with other products, there are risks associated with trading forex. Market and liquidity risks are two key aspects of the forex market that need to be considered before you start trading. IronFX offers a wide range of opportunities to manage portfolio risk by using a range of strategies and techniques including limit, stop, stop limit orders, and more.

Why trade forex?

The average daily turnover of the forex market is over $7 trillion, which means you have many opportunities to explore various currency pairs, and you also have the flexibility to go long or short.

The foreign exchange market is open 24 hours a day, five days a week, while its increased volatility allows you to make large gains if you are right. However, it also carries huge risk.

Trade forex risk-free in our demo

As a forex trading novice, it can be hard to know where to begin with planning your trades in the market. Forex trading is considerably more speculative and riskier than investing, so using a demo account can be a great way to practice.

Forex traders enter the markets daily to extract short-term profits from the exchange. They focus on short-term gains rather than building a long-term portfolio.

As such, they rely on road-tested trading strategies that can be replicated daily when trends occur in the markets.

Why you should trade forex with IronFX

From competitive FX spreads to best-in-class execution and expert support and guidance, trusted for 10+ years, IronFX is a solid name in the industry.

Disclaimer: This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.