Forex Definitions

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From currency pairs to trading session, you can find all the important definitions to take your first steps in the world of Forex trading in this article.

Over-the-counter (OTC) market is a decentralised market in which market participants trade stocks, commodities, currencies, or other instruments directly between two parties and without a central exchange or broker.
Currency pair is a quotation of two different currencies, where one is quoted against the other. Each currency is represented with a three-letter abbreviation and is usually separated from the currency it is paired with using a space, a point, or a slash. For instance, EUR/USD refers to the Euro US Dollar currency pair. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency.
Base currency & Quote currency - the calculation for the rates between foreign currency pairs is a factor of the base currency. Typically, the currency pair will be represented as follows - EUR/USD 1.1830. In this example, the euro (EUR) is the base currency, and the U.S. dollar (USD) is the quote currency. The difference between the two currencies is called a ratio price. It indicates how much of the quote currency is needed to purchase one unit of the base currency. So, one euro will trade for 1.1830 U.S. dollars.
Majors are the most commonly traded currency pairs globally. They involve the currencies euro, US dollar, Japanese yen, pound sterling, Australian dollar, Canadian dollar, and the Swiss franc. The major currencies are those in which most of the world’s foreign transactions are denominated, which means they are the most liquid. They are also the currencies that countries most commonly value their own currency against.
Minors, also known as cross currency pairs, are pairs that do not include the U.S. dollar, but do include at least one of the world's other three major currencies. These slightly less popular pairs often experience more wild swings in both directions due to less liquidity in the market. This also means that their spreads are often wider compared to the majors.
Exotic pairs are usually made up of a major currency alongside a thinly traded currency or an emerging-market economy currency. Examples include USD/TRY, USD/MXN/ EURPLN or EUR/HUF. These pairs are not traded as often as the majors or minors, so often the cost of trading these pairs can be higher than the majors or minors due to the lack of liquidity in these markets. Exotic currencies can be extremely volatile and often trade at low volumes.
Forex Trading Sessions - the forex market is available for trading 24 hours a day, five and one-half days per week and can be divided into four main sessions: Sydney session, Tokyo session, London session and New York session. Sometimes the sessions will overlap, such as during the four-hour period of peak activity in both Europe and North America, which is often accompanied by increased volatility.
Commodity currencies are currencies from countries with rich resources and large commodity reserves. These countries rely heavily on commodity exports, therefore their national currency's exchange rates may fluctuate along with commodities prices. The group of commodity currencies includes: Canadian dollar, Russian rubles, Australian dollar, and New Zealand dollar.

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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Forex Definitions

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