The foreign exchange market (also known as the “FX” or “forex” market) is the largest market in the world, with an average daily turnover of around $6 trillion in 2020. Because there are so many market participants, it is a highly liquid market which means it is easy to enter and exit a trade.
Because currencies are traded in “pairs”, it means that whenever a trader enters a long position, they are buying one currency (bullish) whilst simultaneously selling (shorting) another.
For example, if a trader enters a long (buy) trade on USD/JPY, they are buying USD and selling JPY (Japanese yen). Yet if they were to short USD/JPY, they are then selling USD and buying JPY.
We can group forex pairs into three main categories, based on their trading volumes, volatility levels and association with the USD.