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FX (Foreign Exchange)

Difficulty intermediate

Overview

The FX market is the largest financial market globally, with daily turnover exceeding $7.5 trillion. It operates 24 hours a day, 5 days a week.

Currency Pairs

Major Pairs

Pair Nickname Characteristics
EUR/USD Fiber Most liquid, tightest spread
USD/JPY Ninja Safe-haven yen, Asian session
GBP/USD Cable Volatile, London session
USD/CHF Swissie Safe-haven franc
AUD/USD Aussie Commodity-linked
USD/CAD Loonie Oil-linked
NZD/USD Kiwi Commodity-linked

Cross Pairs

Pairs without USD: EUR/GBP, EUR/JPY, GBP/JPY, AUD/NZD

Exotic Pairs

Emerging market currencies: USD/TRY, USD/ZAR, USD/MXN

fx market structure

Trading Sessions (overlapping):
Sydney: 5:00 PM - 2:00 AM ET
Tokyo: 7:00 PM - 4:00 AM ET
London: 3:00 AM - 12:00 PM ET  ← Most liquid
New York: 8:00 AM - 5:00 PM ET

Peak liquidity: London/NY overlap (8 AM - 12 PM ET)

Driving Factors

Factor Impact
Interest rates Higher rates → stronger currency
Central bank policy Hawkish → stronger, dovish → weaker
Economic data Strong data → stronger currency
Risk sentiment Risk-on → commodity currencies up
Geopolitics Uncertainty → safe-haven currencies up
Trade flows Export-driven currencies follow trade

fx trading strategies

Carry Trade

Borrow low-yielding currency (JPY, CHF)
Invest in high-yielding currency (AUD, NZD, MXN)
Profit = Interest differential - FX move

where: Interest differential rate earned on the high-yield leg minus rate paid on the funding leg · FX move adverse spot move in the high-yield currency over the holding period. does: captures the structural rate spread between currencies. Profitable in calm regimes; vulnerable to sharp FX reversals (risk-off "unwinds") that erase years of carry in days — the classic "picking up pennies in front of a steamroller" trade.

Trend Following

FX trends persist longer than equity trends
Use moving averages, breakouts
Hold for weeks to months

Mean Reversion

Range-bound pairs: EUR/CHF (historically)
Buy support, sell resistance
Works best in low-volatility regimes

News Trading

Trade around central bank decisions, NFP, CPI
High volatility, wide spreads
Quick entries and exits

Pip and Lot Sizes

Pip: 0.0001 for most pairs (0.01 for JPY pairs)
Standard lot: 100,000 units
Mini lot: 10,000 units
Micro lot: 1,000 units

Pip value (EUR/USD standard lot): $10 per pip

Practical Guidelines

  1. Leverage Is Dangerous — FX allows high leverage; use wisely
  2. Session Matters — Trade during peak liquidity
  3. Spread Costs — Exotics have wide spreads
  4. Central Banks — They are the most important players
  5. Correlations — EUR/USD ≈ -USD/CHF, AUD/USD ≈ NZD/USD
  6. Rollover — Overnight interest rate differential applies
  7. News Risk — FX can gap significantly on news

Next Steps