The foreign exchange market is the largest financial market across different countries. Trillions of dollars are traded daily, as people exchange one currency for another. The forex base currencies (สกุลเงินหลัก forex) are the heart of these trades. It acts as the first currency in a currency pair and forms the reference point for every Forex transaction.

Understanding how every forex market works will help you see where and how the base currencies are traded worldwide.

The spot forex market

The spot forex market is where trades happen instantly. Currencies are bought and sold for immediate delivery in the spot forex market. Traders refer to the spot market about buying or selling a currency right now. Spot forex market focuses on currency pairs, such as:

• EUR/USD
• USD/JPY

The first currency in the pair is:

• the base currency

• the quote currency

The EUR/USD:

The EUR or Euro is the base currency, while the U.S. Dollar is the quote currency. The price is the amount of the quote currency to purchase one unit of the base currency. The spot market is precise and efficient. So, it is a favorite among beginners and short-term traders.

The forward forex market

The forward Forex market is planned. It is based on agreements between two parties to exchange currencies:

• at a future date
• at a fixed price

Nothing is exchanged immediately, unlike the spot market. Traders lock in a rate for a trade that happens later. It is a type of market used by investors to protect themselves from future changes in exchange rates.

For example:

A company that needs to pay suppliers in another country can use a forward contract to avoid losses if the currency value changes.

The base currency is still important in the forward market, as it defines the main currency agreed upon in the contract.

The futures forex market

The futures Forex market is similar to the forward market, but with one difference: contracts are standardized and traded on official exchanges. These contracts are easier to trade for individual investors because they have:

• set sizes
• fixed expiration dates

Traders use the futures market to:

• speculate on price movements

• hedge risk

If someone believes a base currency will become stronger in the future, they can:

• buy a futures contract
• profit if their prediction is correct

The market adds structure and transparency, as regulated by exchanges.

The options forex market

Traders buy the right, but not the obligation. They exchange a currency at a specific price on or before a certain date. Traders are provided with more flexibility because they can decide not to use the option if the market moves against them.

Options are used to manage risk or to take advantage of possible price changes with limited loss. Traders analyze currency pairs, and the base currency remains the foundation of each trade. The market is more complex than others, but it offers creative strategies for experienced traders.

The swap forex market

The swap Forex market involves the exchange of currencies between two parties for a certain period. Both parties agree to swap back the currencies later at a specific rate. Swaps are used by banks and large institutions to manage long-term currency needs and interest rate exposure.

Why do forex base currencies matter?

Base currencies are the foundation of all Forex trading. They indicate a currency you are buying or selling. Also, they help determine the value of a currency pair. Major currencies are used as base currencies as they are widely traded, such as:

• USD
• EUR
• GBP
• JPY

Traders can easily trade by understanding the base currencies to:

• read charts properly
• calculate profits or losses
• make smarter trading decisions

Conclusion

Understanding the five types of Forex markets provides some knowledge about how the global currency system works. Each market has a different purpose, but all of them rely on base currencies to function.