Forex, one currency against another.
What the foreign exchange market is, what moves exchange rates, and how currency pairs are quoted and traded.
What forex is
Forex, short for foreign exchange, is the market in which currencies are bought and sold against one another. Businesses use it to pay for goods from abroad, travellers to change money, central banks to manage their reserves, and traders to take a view on where exchange rates will go next.
There is no single forex exchange. Banks and other financial institutions trade with one another directly, from financial centres in different time zones, which is why the market stays open around the clock through the working week.
Currencies always trade in pairs, because buying one currency means selling another. The price of a pair is how much of the second currency one unit of the first costs.
What moves exchange rates
Interest rates
Higher interest rates can make a currency more attractive to hold, so central bank decisions, and what central banks say about the future, often move exchange rates.
Economic data
Reports on growth, employment and inflation change what markets expect of an economy, and with it the value of its currency.
Trade and investment flows
Demand for a country’s exports, and money moving into or out of its markets, raise or lower demand for its currency.
Events and sentiment
Elections, conflicts and changes in confidence can move currencies quickly, sometimes before any economic figure has changed.
Major currencies against each other
How forex trades
Reading a quote
A pair is written as two currency codes, such as EUR/USD. The first is the base currency and the second is the quote currency, so the price of EUR/USD is how many US dollars one euro costs. Buying the pair is a view that the euro will rise against the dollar; selling it, that the euro will fall.
Bid, ask and spread
Every pair has two prices. The bid is the price at which you can sell, and the ask, slightly higher, is the price at which you can buy. The gap between them is the spread, a cost paid on every trade.
Pips
Moves in a pair’s price are counted in pips. For most pairs a pip is a change in the fourth decimal place of the price, and for pairs quoted in Japanese yen a change in the second. What a pip is worth depends on the size of the position.
Lots
Position sizes are counted in lots, each a standard amount of the base currency, and fractions of a lot allow smaller positions. The trade sizes Noryn Markets offers are confirmed on request.
Leverage and margin
Leverage lets you hold a position larger than the money you set aside for it, and the money set aside is the margin. Leverage magnifies losses as much as gains. If losses take the money in an account below the margin its positions need, positions can be closed automatically, at a loss. How much leverage is available differs by account type and by market, and the figures that apply to an account are confirmed on request through the contact form.
Trading sessions
The trading week opens in Asia and the Pacific, and activity moves on to Europe and then North America before the market closes at the end of the week. Prices tend to move most when the sessions of the largest centres overlap. The trading hours Noryn Markets offers are confirmed on request.
Swaps
A position still open at the end of the trading day usually has a swap applied: a small charge or credit that reflects the difference between the interest rates of the two currencies.
Examples of currency pairs
Majors pair the US dollar with another widely traded currency; crosses pair two such currencies without the dollar. Which pairs Noryn Markets offers is confirmed on request.
| Symbol | Name | Note |
|---|---|---|
| EUR/USD | Euro / US dollar | Major |
| USD/JPY | US dollar / Japanese yen | Major |
| GBP/USD | British pound / US dollar | Major |
| USD/CHF | US dollar / Swiss franc | Major |
| AUD/USD | Australian dollar / US dollar | Major |
| USD/CAD | US dollar / Canadian dollar | Major |
| NZD/USD | New Zealand dollar / US dollar | Major |
| EUR/GBP | Euro / British pound | Cross |
| EUR/JPY | Euro / Japanese yen | Cross |
| GBP/JPY | British pound / Japanese yen | Cross |
The risks
Leverage magnifies losses
A small move in an exchange rate can cause a loss larger than the margin set aside for a position.
Prices can move sharply
Rates can jump on news or data, and in a fast market an order can be filled at a worse price than the one you set.
Gaps over the weekend
The market can open the week at a different price from where it closed, jumping past orders set in between.
Costs add up
Spreads, commissions and swaps are paid whether a trade gains or loses, and they add up over many trades or long-held positions.
Questions about forex
Why are some pairs called majors?
They pair the US dollar with another of the most widely traded currencies, such as the euro, the Japanese yen or the British pound. Because so many buyers and sellers trade them, their spreads tend to be narrower than those of less traded pairs.
When is the forex market busiest?
When the trading sessions of the largest financial centres overlap, above all when Europe and North America are open at the same time.
What does selling a pair mean?
Selling a pair, also called going short, is a view that the base currency will fall against the quote currency. The position gains if it falls and loses if it rises.
Which currency pairs does Noryn Markets offer?
The page above explains how majors and crosses are put together and how a quote is read, which is what makes a list of pairs worth reading. The list itself is confirmed on request through the contact form.
What are the spreads on currency pairs?
A spread is the gap between the price to buy and the price to sell, and it is one of the costs of holding a position. It is narrower in the most heavily traded pairs and wider when a market is thin or moving fast, so it is not one number. The spreads that apply to an account are confirmed on request through the contact form.
Other markets
- Indices
A single price that follows a basket of company shares.
- Commodities
Raw materials, from energy to agricultural products.
- Precious metals
Metals valued for their scarcity and long history as a store of value.
- Shares
Prices that follow individual companies listed on stock exchanges.
- ETFs
Funds that trade on an exchange in the same way as a single share.
Interested in forex?
Register your interest, and say which currency pairs you would like to hear about.
Open accountImportant information
Trading forex and contracts for difference involves a high level of risk, and it is not suitable for every investor. These products use leverage, which means a position can be held with only part of its value set aside as margin, and leverage magnifies gains and losses alike. A position may be closed when margin requirements are not met. Markets can move quickly, and at times a market can be difficult to trade at all. Past performance is not a reliable indicator of future results. Nothing on this website is investment advice or a recommendation, and nothing here takes account of your objectives, your experience or your circumstances. Consider your own circumstances, and seek independent advice before you act.
This page explains a market in general terms, for people deciding whether they want to learn more about it. It is not advice about that market or about any instrument in it, and naming something here does not mean it can be traded through Noryn Markets.