Introduction to Forex

Any introduction to forex trading first needs to clarify that a foreign exchange transaction involves the simultaneous purchase of one currency and the sale of another. The rate at which this trade is executed is known as the foreign exchange rate or the forex rate, for short.

Forex Market Participants

Common Major and Minor Currency Pairs

Currency Trading Volume and Liquidity

The forex market is the largest and deepest financial market in the world, often seeing a total daily transaction volume exceeding two trillion dollars. Furthermore, as their name implies, by far the largest quantity of forex trading volume will generally be seen in the major currency pairs and major crosses, with the markets in EUR/USD, USD/JPY and EUR/JPY being the largest and deepest forex markets.

Liquidity can be defined as the ability to make a transaction without disturbing the price and at a minimal bid/ask spread. As a result of the outstanding breadth of the forex market in the majors, someone looking to trade those commonly-traded currency pairs will enjoy the tightest bid/ask exchange rate spreads and the highest degree of liquidity. 

Forex Broker Reviews

Markets

Bloombex

eToro

Forexyard

The forex market also offers considerable liquidity in the minor currencies and crosses; although the markets in the exotic currencies are often illiquid. Sometimes exotic currency pricing is only available in small sizes, and it can involve wide trading spreads.

Furthermore, exotic currency forex rates can sometimes become unavailable during counter-currency devaluations relative to the U.S. Dollar or during periods of economic and political instability in the country associated with the counter-currency.

Leverage in the Forex Market*:

Unlike a stock trade in which money is used to buy the stock of a company, a forex trade involves exchanging currencies in amounts that are currently of equal value. Since the purchase price of one currency is the same as the sale price of the other, this means that forex transactions are entered for no net cost. As a result, forex trading can provide a highly-leveraged way of speculating on financial market movements for both large and small participants alike.

Also, generally the amount of forex transactions you can perform with a particular counterparty will depend on how much credit they will grant you (if you are a larger participant) or on how much margin you have placed in your trading account (if you are a smaller participant).