FX trading, also called foreign exchange trading or foreign currency trading is the commerce of different currencies in a decentralized international market. It is one of the biggest and most liquid global financial markets in the whole world. It attracts more than $1 trillion in trading each day. This huge trading volume is made possible by the fact that the prices of currencies are always fluctuating, which causes the difference between the opening and closing prices of a particular currency pair. It is the profit motive that causes the traders to enter into currency trading; they are able to make profits when they buy a currency at low prices and sell it for high prices.

The forex trader should be aware of the basics of this trade before entering into it. There are many different aspects of this trade that need to be learned, and some of these key features are mentioned below. It is essential to have a working knowledge of the various types of currencies that are traded in the market. The most commonly traded pairs are the US Dollar/Japanese Yen (US dollar/JY), the Euro / Pound Sterling (EUR pound/ Sterling), the Australian Dollar / US Dollar (AUD dollar/US dollar), Canadian Dollar / US Dollar (CAD dollar/US dollar), Swiss Francs / Euros (Swiss francs/ Euros) and the British Pound / Japanese Yen (GBP pound/yen).

Forex trading has three major types - spot, forward, and counter currency. A spot deal gives the buyer the right to purchase an asset at a certain rate within a specified period, for pre-decided delivery date. Forward is a sale of an existing contract while counter currency deals are sales of assets over the counter, meaning that the transaction is neither complete nor closed. The various types of trades can be traded either in the United States or overseas.

While there is considerable amount of volatility in the financial markets, this is controlled by two forces - the fundamental factors and the impact of speculations. The interest rate is a major driving force behind financial markets. It is the market value of the debt of a central bank determined by the central bank with the aim to control the inflation. When interest rates rise, the market volatility is usually proportional to the change in the market value of debt. As the rates rise, this causes financial markets to respond with higher market volatility.

There are two main categories of markets for FX trading 

the 'over the counter' and the 'futures' markets. The former deals with the trading of foreign currencies in the same way as the stocks and options. Futures involves buying a specific quantity of currency and holding it for a pre-defined time frame so as to hedge against any fluctuation in the foreign exchange market. The most popular and liquid foreign exchange currency pairs are the US Dollar/Swiss Franc, US Dollar/Japanese Yen, European Dollar/Great Britain Pound and US Dollar/Swiss Franc. Most of the Forex brokers offer services that involve trading in these currencies.

The other category of trading that occurs on the forex markets includes 'over the counter' transactions. These are normally small-scale transactions between individuals. They do not require any clearing house and thus go through a relatively simple settlement process. The brokers who deal in these foreign exchange risk accounts have special back offices, which act as clearing houses, hence facilitating the trading transactions.