‘Forex’ or ‘FX’ derives from ‘Foreign Exchange’ is a decentralized global market where traders can buy and sell currencies.
When speculating on the currencies market, we can either buy a currency pair, if we think its rate will rise, or on the contrary, sell it, in which case we think its rate will fall.
In other words, when we buy EUR/USD, this means selling U.S. Dollars to buy Euros. On the other hand, if we sell EUR/USD, we sell Euros to buy U.S. Dollars.
The first currency mentioned, which in this case is the EUR, is called the "base" currency and the second currency, which in this case is the USD, is called the "counter" currency.
There is a reason why forex is the largest market in the world. The major players in this market are the central banks, commercial banks, investment firms, large multinational companies, brokers, and so forth.
The big players like central banks have a significant impact on the Forex market. Central banks perform currency interventions as part of their monetary policy mandate. A central bank intervention occurs when a central bank buys or sells its currency in the foreign exchange market to raise or lower its value against another currency.
The commercial banks, investment firms, multinational companies access the Forex market either for currency exchange or to make speculative investments. Together all the participants make the Forex market one of the biggest in the world.
The Forex market is now the most liquid market in the world with a daily turnover of around $6 trillion dollars compared to only $500 billion back in 1977. That is more than most of the biggest stock markets combined.
There are hundreds of currencies in the world, and each currency has its own three-letter symbol that represents that country and the currency that is being traded. For example, American Dollars are USD, Euros are EUR, Swiss Francs are CHF, British Pounds are GBP, and so forth.
Most of the trade takes place in the seven major currency pairs. These pairs are EUR/USD, GBP/USD, USD/CAD, USD/JPY, NZD/USD, USD/CHF, and AUD/USD.
The major currency pairs compose approximately 85% of the market and, as a result, have high liquidity, which means they have a high trading volume that creates many exciting trading opportunities.
In addition to the major currency pairs, you also have the option to trade cross currency pairs. A cross-currency refers to a currency pair that does not contain the U.S. dollar. Common cross currency pairs involve the euro and the Japanese yen.
Finally, we have the exotic pairs which usually consist of a major currency alongside a less frequently traded currency or an emerging-market economy currency such as the Singapore dollar or Indian Rupee.
The Forex market opens at 10 pm GMT on Sunday and is open continuously throughout the week until it closes at 10 pm GMT on Friday. The sessions cover the global time zones which makes it possible to trade Forex around the clock.
The most important trading sessions take place in London, New York, Sydney, and Tokyo. The sessions vary in trading volume. The most active trading session in terms of volume is the London session which is followed by the New York session. At times when markets overlap, the highest volume of trades takes place.
Just before the turn of the twentieth century, Forex Trading was better known only to wealthy individuals and institutional investors. However, the rapid growth in internet technology has made Forex trading more accessible than ever before. Today, you can even trade Forex from a mobile device.
There are many advantages of trading Forex, which include long market hours, margin trading, high liquidity, and the ability to go long or short, as a result, benefit from rising and falling markets.
Looking to trade the largest financial market in the world? You are in the right place!
When you trade currencies with INGOT Brokers, you trade using CFDs. Contracts for Difference (CFDs) enable you to take advantage of price movements in an underlying asset, for example, GBPUSD, allowing you to potentially profit from falling markets as well as rising ones.
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