What is Forex (FX)?
Forex (FX) is the marketplace where various national currencies are traded. The forex market is the largest, most liquid market in the world, with trillions of dollars changing hands every day. There is no centralized location, rather the forex market is an electronic network of banks, brokers, institutions, and individual traders (mostly trading through brokers or banks).
Many entities, from financial institutions to individual investors, have currency needs, and may also speculate on the direction of a particular pair of currencies movement. They post their orders to buy and sell currencies on the network so they can interact with other currency orders from other parties.
The forex market is open 24 hours a day, five days a week, except for holidays. Currencies may still trade on a holiday if at least the country/global market is open for business.
Forex Pairs and Quotes
When trading currencies, they are listed in pairs, such as USD/CAD, EUR/USD, or USD/JPY. These represent the U.S. dollar (USD) versus the Canadian dollar (CAD), the Euro (EUR) versus the USD and the USD versus the Japanese Yen (JPY).
In the forex market currencies trade in lots, called micro, mini, and standard lots. A micro lot is 1000 worth of a given currency, a mini lot is 10,000, and a standard lot is 100,000. This is different than when you go to a bank and want $450 exchanged for your trip. When trading in the electronic forex market, trades take place in set blocks of currency, but you can trade as many blocks as you like. For example, you can trade seven micro lots (7,000) or three mini lots (30,000) or 75 standard lots (750,000), for example.
How Large Is the Forex?
The forex market is unique for several reasons, mainly because of its size. Trading volume is generally very large. As an example, trading in foreign exchange markets averaged $6.6 trillion per day in April 2019, according to the Bank for International Settlements.
The largest foreign exchange markets are located in major global financial centres like London, New York, Singapore, Tokyo, Frankfurt, Hong Kong, and Sydney.
How to tradein forex
The forex market is open 24 hours a day, five days a week across major financial centers across the globe. This means that you can buy or sell currencies at any time during the week.
From a historical standpoint, foreign exchange trading was largely limited to governments, large companies, and hedge funds. But in today’s world, trading currencies is as easy as a click of a mouse. Accessibility is not an issue, which means anyone can do it. Many investment firms, banks, and retail forex brokers offer the chance for individuals to open accounts and to trade currencies.
When trading in the forex market, you’re buying or selling the currency of a particular country, relative to another currency. But there’s no physical exchange of money from one party to another. In the world of electronic markets, traders are usually taking a position in a specific currency, with the hope that there will be some upward movement and strength in the currency they’re buying (or weakness if they’re selling) so they can make a profit.
A currency is always traded relative to another currency. If you sell a currency, you are buying another, and if you buy a currency you are selling another. In the electronic trading world, a profit is made on the difference between your transaction prices.