Introduction to the Forex Market

FX or Forex is an acronym and it stands for foreign exchange. The FX market is a market where you can trade or, if you prefer, exchange currencies. It is an over the counter market and it’s a decentralised market with no actual physical central exchange. Thus it is an over the counter market. In OTC Markets you can trade a number of securities, including commodities, stocks, debt securities and derivatives.

A definition by Investopedia notes that : The forex market allows participants, such as banks and individuals, to buy, sell or exchange currencies for both hedging and speculative purposes. The foreign exchange (forex) market is the largest financial market in the world and is made up of banks, commercial companies, central banks, investment management firms, hedge funds, retail forex brokers, and investors. Trading in the forex is not done at one central location but is conducted between participants by phone and electronic communication networks (ECNs) in various markets around the world.

It’s open 24 hours a day, 5 days a week and closes on weekends from midnight Friday until Sunday at midnight. The typical forex day is being split into three main sessions. We make a start with the Asian session which starts at around midnight GMT+2 with the Sydney and Tokyo being open and carries us through until the European session begins at around nine o’clock in the morning when Frankfurt and a bit later London open. Later on, the American session begins as the NY stock exchange opens and carries us through until midnight when the next Asian session is to start. So practically at any given moment there is at least one market open to trade forex and at sometimes some markets overlap each other.

It’s the world’s biggest market and it’s characteristic that in the past years the FX market had a daily turnover of around 6.6 trillion US dollars. Imagine what trading opportunities occur when that 6.6 trillion dollars exchange hands each day.