A base currency is the currency in terms of which an exchange occurs. When Quoting a currency pair the base currency is always the first currency listed. Thus in a USD/JPY exchange the rate will always be quoted in Dollar terms. The currency against which the base currency is traded is referred to as the Counter currency. The USD is the dominant currency in the Forex market and is the Base currency most frequently quoted in trades. Exchanges where the

USD is not present are known as Cross Pairs and, again, conventions exist when quoting between these currencies.

In a trade currencies are swapped for each other. There are various Swap types that together constitute the Forex market. A Spot is the simplest form of trade in the market; it is an instant trade between two parties. In a Spot trade, currencies are traded at the exchange rate that exists between them at the point in time when the swap occurs. By convention the actual exchange is

then executed two working days later. In a Day Trade, trade is opened and closed within the same trading session. As a result, no interest is accrued on the trades conducted.

Trades that occur subsequent to the trading session are referred to as Forwards. There are a number of varieties of forwards that are utilized in forex. In a Forex Swap parties agree to the temporary exchange of currency sums for a relatively short period of term. A contract for the swap is agreed upon and once the contract term has expired the swap is reversed. Swaps

represent the largest single constituent in Forex trading volumes. In a Future (or a Forwards Swap), a contract is entered into to buy currency at a future date at an agreed rate. Parties may enter into futures if they wish to lock-in current profit or monies earned in foreign currency at known market-levels thereby achieving certainty of returns on their balance sheets. In an Option, a party pays for the right but not the obligation to buy a currency at an agreed

future date at an agreed upon level. If, on the date specified, the agreed rate is lower than the trading rate available in the marketplace then the option will be activated and the trade will occur. However, if, on the day, the exchange rate is lower than the option rate; the option will be waived.