The FX market does not have commissions. Unlike exchange-based markets, FX is a principals-only market. FX firms are dealers, not brokers. Unlike brokers, dealers assume market risk by serving as a counterparty to the investor's trade. They do not charge commission; instead, they make their money through the bid-ask spread.

FX traders hope to profit from changes in exchange rates between currency pairs. For dollar-denominated accounts, all profits or losses are calculated in dollars and recorded as such on the trader's account.

The FX market exists to help with the exchange of one currency into another, a facility used by multinational corporations that need to continually trade currencies (i.e., for payroll, payment for goods and services from foreign vendors, and mergers and acquisitions). Financial institutions use the forex markets to hedge positions and take directional bets on currency pairs based on fundamental research and technical analysis. Individual traders may also trade currencies to speculate on exchange rate moves.

Since currencies always trade in pairs, when a trader makes a trade, that trader is always long one currency and short the other. For example, if a trader sells one standard lot (equivalent to 100,000 units) of EUR/USD, they would have exchanged euros for dollars and would now be short euros and long dollars.

Although some retail dealers trade exotic currencies such as the Thai baht or the Czech koruna, the majority of dealers trade the seven most liquid currency pairs in the world, which are the four "majors":

EUR/USD (euro/dollar) USD/JPY (dollar/Japanese yen) GBP/USD (British pound/dollar) USD/CHF (dollar/Swiss franc). The three commodity pairs are also traded:

AUD/USD (Australian dollar/dollar) USD/CAD (dollar/Canadian dollar) NZD/USD (New Zealand dollar/dollar) These seven major currency pairs account for about 80% of all speculative trading in FX. Given the small number of trading instruments—over 50 pairs and crosses are actively traded—the FX market is far more concentrated than the stock market.

Carry is the most popular trade in the currency market, practiced by both the largest hedge funds and the smallest retail speculators. The carry trade is based on the fact that every currency in the world has an associated interest. These short-term interest rates are set by the central banks of these countries: the Federal Reserve in the United States, the Bank of Japan in Japan, and the Bank of England in the United Kingdom.

The concept of "carry" is straightforward. The trader goes long on the currency with a high-interest rate and finances that purchase with a currency that has a low-interest rate. For example, in 2005, one of the best pairings was the NZD/JPY cross. The New Zealand economy, spurred by huge commodity demand from China and a hot housing market, saw its rates rise to 7.25% and stay there while Japanese rates remained at 0%. A trader going long on the NZD/JPY could have harvested 725 basis points in yield alone. On a 10:1 leverage basis, the carry trade in NZD/JPY could have produced a 72.5% annual return from interest rate differentials without any contribution from capital appreciation. This example illustrates why the carry trade is so popular.