Entering the world of forex trading can feel overwhelming for beginners. Unlike traditional stock markets, the foreign exchange (forex) market operates with unique mechanics, instruments, and a global structure that runs nearly around the clock. This guide breaks down the foundational elements you need to understand before placing your first trade—including what currency pairs are, how pip values work, and why the forex market functions 24 hours a day, five days a week.
What Is the Forex Market?
The forex market is the global marketplace where currencies are bought and sold. It’s the largest and most liquid financial market in the world, with daily trading volumes exceeding $7 trillion 3. Unlike stock or bond markets that operate on fixed exchange hours, the forex market is open 24 hours a day from 10 p.m. UTC on Sunday (Sydney session open) until 10 p.m. UTC on Friday (New York session close) 1. This continuous operation occurs because currencies are traded across four major financial centers—Sydney, Tokyo, London, and New York—whose trading hours overlap to ensure constant liquidity 2.
This structure allows traders from any time zone to participate, though certain sessions (notably the London and New York overlap from 1 p.m. to 4 p.m. GMT) offer the highest volatility and liquidity 6.
Understanding Currency Pairs
In forex, you never trade a single currency in isolation—you always trade one currency against another. This is known as a currency pair, expressed as a ratio of one currency’s value relative to another. For example, EUR/USD represents how many U.S. dollars (the quote currency) are needed to buy one euro (the base currency).
Currency pairs are categorized into three main types:
1. Major Pairs
These involve the U.S. dollar paired with another major global currency. Examples include EUR/USD, USD/JPY, GBP/USD, and USD/CHF. Major pairs account for the majority of global forex volume and offer tight spreads (the difference between bid and ask prices) due to their high liquidity 10.
2. Minor Pairs (Crosses)
Minor pairs, also called “crosses,” do not include the U.S. dollar. Common examples are EUR/GBP, GBP/JPY, and AUD/CAD. While still relatively liquid, they typically have wider spreads and lower trading volumes than majors 10.
3. Exotic Pairs
Exotic pairs combine a major currency with that of an emerging market economy—such as USD/SGD, EUR/TRY, or GBP/ZAR. These pairs are less liquid, exhibit higher volatility, and carry wider spreads, making them more suitable for experienced traders 10.
Understanding these categories helps you assess risk, cost, and market behavior before committing capital.
What Is a Pip?
A pip (percentage in point) is the smallest price movement a currency pair can make. For most pairs, a pip is the fourth decimal place (0.0001). For example, if EUR/USD moves from 1.0850 to 1.0851, that’s a one-pip change. Exceptions exist for pairs involving the Japanese yen (e.g., USD/JPY), where a pip is the second decimal place (0.01) 7.
Pip value determines your potential profit or loss. It depends on:
- The currency pair traded
- The size of your position (lot size)
- The exchange rate
For instance, in a standard lot (100,000 units of the base currency), one pip in EUR/USD is typically worth $10. Smaller lot sizes—mini (10,000) or micro (1,000)—reduce pip value proportionally, offering greater flexibility for beginners managing risk.
Why the 24/5 Market Matters
The forex market’s 24/5 availability isn’t just a convenience—it’s a strategic feature. Different sessions reflect the economic activity of their regions. The Tokyo session often sees movement in Asian currencies, while the London session drives European pairs. The New York session influences USD-related pairs and often experiences high volatility due to economic data releases 4.
By understanding session overlaps—especially the London–New York window—you can align your trading strategy with periods of optimal liquidity and price movement 6.
Getting Started Responsibly
Before you begin trading, it’s essential to recognize that forex involves significant risk. Leverage can amplify both gains and losses, and without proper education and risk management, traders can lose capital rapidly.
If you’re ready to apply these fundamentals in a live environment, you can create a trading account with AXI Corp—the trusted broker partner of Axi Global Markets. For more educational resources on currency pairs, pip values, and the forex market, explore our blog library designed specifically for traders at every level.
Risk Disclaimer: Trading forex/CFDs on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could sustain a loss of some or all of your capital. Past performance is not indicative of future results.
Axi Global Markets operates as an independent educational blog and is an Introducing Broker partner of AXI Corp. We may receive compensation for referrals.