Two-way exclusive OR (XOR) relay can enable hidden nodes to exchange data with low delays and high data rate, while keeping signal processing simple. In this paper, we analyse practical two-way XOR relaying systems, where finite relay buffer, non-negligible signalling overhead, and lossy wireless channels are all captured. A two-layer model is developed to characterise such practical two-way relay systems, which is then reformulated into a Markov process after we project and combine inter-layer state transitions of the two-layer model. Using Markov techniques, we evaluate the steady state probabilities of the Markov process and, in turn, the key performance measures of two-way XOR relaying, such as throughput, delay, and packet loss. The accuracy of our model is validated by simulations. Our model can also be used as an online tool to configure the buffer resources, adapting to wireless channel conditions and signalling requirements.