Foreign exchange, which is also known as forex or FX is the global market where traders, investors, institutions and banks, exchange, buy, sell and speculate on world currencies manipulating them in form of currency pairs (e.g. USD/EUR). Forex is considered to be one of the largest markets at the moment, with a daily turnover exceeding $5 trillion in estimates.
Previously, the main participants in the Forex market were central banks, corporations, big financial institutions and individuals of significant wealth, but with the availability of the internet, the Forex market has opened its point of entry to individuals who can now take part and benefit from this ever-changing and growing financial market.
Currency pairs are divided into three main groups – major, minor, and exotic, based on the share of the global exchange market they constitute. The majors include seven pairs, which in their turn constitute over 80% of the whole Forex trading volume, and the exhibit high market liquidity. Currency pairs that are traded less called minors. Exotic pairs are the most thinly traded pairs, and they used in global transactions as widely. However, many experienced traders consider exotic pairs to be a valuable addition to their portfolio due to the combination of high volatility and low liquidity.
Numerous factors influence and determine the value of currencies such as local and global economics, natural disasters, and political events. A trader aims to gain from the rise and fall of a currency caused by the aforementioned factors.
