Interest rates
Central-bank policy, and the expected path of it, changes what one currency is worth holding relative to the other.
Forex: A Market Built on Relationships
A currency has no price of its own. It has a price against another currency, and every forex position is a view on that relationship.
The instrument
Every forex quote is a comparison, not a valuation.
Forex trading focuses on that relationship – how economic conditions, interest rates, central-bank decisions and market sentiment can change the value of one currency against another.
It is why a currency can strengthen on a day its own economy looks weaker. What moves is the distance between two economies, not the standing of either one on its own.
What moves the price
A pair reprices when the gap between two economies changes.
No single release drives a currency. What matters is which of these has moved relative to what the market had already assumed.
Economic data
Inflation, employment and growth releases are read against a forecast. The surprise usually matters more than the level.
Politics and policy
Elections, fiscal decisions and trade measures can change expectations for a currency faster than any scheduled release.
Risk sentiment
When markets reprice risk broadly, capital moves between currencies for reasons unconnected to either economy.
Market structure
Not every pair behaves like the majors.
Follow major, minor and available currency pairs from one trading environment.
Majors
Pairs built from the most heavily traded currencies, and the ones whose economic calendars are followed most closely.
Minors and crosses
Pairs of major currencies that leave the US dollar out, so a dollar move no longer dominates the quote.
Emerging-market pairs
Where available, currencies of smaller or less liquid economies, where moves can be larger and gaps between quotes more common.
Before you trade it
Forex risk is leverage against a market that barely closes.
Currency positions are generally held on margin, so a small move in the quote is a much larger move against the capital committed to it.
The global currency market runs through the trading week without a daily close, and liquidity is not the same in every hour of it. A pair can travel furthest in the hours when the fewest participants are there to price it.
A position carried across the weekend is exposed to news released while the market is shut, and the next quote may not be near the last one. Where stop orders are available they limit that exposure without removing it: a gap can open straight past the level requested.
Both sides of the pair are live at once. A position can lose because the currency you sold strengthened, not because the one you bought weakened – which is why a view on one economy is only ever half a trade.
Keep reading
A currency view usually begins somewhere other than the currency.
Rates, commodity prices and index levels all feed back into the same quote. These are the pages next to this one.
Indices
The rate expectations that move a currency also reach the equity index priced in that same currency.
Commodities
Globally traded commodities are quoted in dollars, so a currency move changes the price before supply does.
How to get started
What the account process involves, step by step, before any position is placed.
Next step
Forex is one of five markets reachable from one trading environment.
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Trading involves risk of loss. The risk disclosure is not yet published; the standardised risk warning is shown at the foot of every page.