INTRODUCTION TO FOREX

What is forex?

FOREX is short for FOReign (Currency) EXchange. The forex market is the international trading and exchange of currencies.

How does forex trading work?

Rather than trading on a regulated exchange like the stock markets around the world, forex itself is traded via the ‘over-the-counter’ market. This is like a series of private transactions between participants such as banks, which is why it is also known as the ‘interbank’ market

This highly liquid 24 hour market opens in New Zealand and Australia and then literally follows daylight hours around the globe with markets in Asia, the Middle East, Europe and America. This means it is continuously open from Monday morning to Friday evening and only closes down for a short weekend.

IS this a liquid market?

YES! In fact it is the biggest financial market by far with around $2 trillion EVERY DAY in turnover. London is the major world centre for forex, accounting for around one-third of trading volume, followed by New York, Tokyo, Frankfurt, Singapore, Hong Kong and Sydney.

The most traded currencies are:

US dollar (USD)
Euro (EUR)
Japanese Yen (JPY)
Pound Sterling (GBP)
Swiss Franc (CHF)
Australian Dollar (AUD)
Canadian Dollar (CAD)

However there are dozens more minor currencies which are traded.

Currencies are traded in pairs (also known as 'crosses') so for example, the most highly traded pair is the Euro - Dollar (EUR/USD).

Who trades Forex?

Governments and central banks, investment banks, retail banks, credit card companies, pension funds, international business corporations and hedge fund managers. On the smaller scale you will have individual speculators who trade the forex market, many who are able to do so via online forex brokers.