Introduction to the Forex Market
What is Forex?
"Forex" stands for foreign exchange; it's also known as FX. In a Forex trade, you buy one currency while simultaneously selling another.
Currencies trade in pairs, like the Euro-US Dollar (EUR/USD) or US Dollar / Japanese Yen (USD/JPY). Forex trading is used to speculate on the relative strength of one currency against another. The foreign exchange market is an over-the-counter market, which means that it is a decentralised market with no central exchange.
Who trades currencies, and why?
Daily turnover in the world's currencies comes from two sources:
- Foreign trade (5%). Companies buy and sell products in foreign countries, plus convert profits from foreign sales into domestic currency.
- Speculation for profit (95%).
Most traders focus on the biggest, most liquid currency pairs. "The Majors" include US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. In fact, more than 85% of daily Forex trading happens in the major currency pairs.
The world's most traded market
With average daily turnover of US$3.2 trillion, Forex is the most traded market in the world.
A true 24-hour market from Sunday 17:00 to Friday 17:00 New York time, Forex trading begins in Sydney, and moves around the globe as the business day begins, first to Tokyo, London, and New York.