The foreign exchange (“FOREX” or “FX”) market is the largest financial market in the world. Compared with the New York Stock Exchange (with a daily trading volume of $100 billion), the FOREX market has a much greater daily trading volume, up to $4 trillion, making it the world's most important financial market, providing ample opportunities for investors who participate in FOREX trading.
In general, FOREX trading does not entail commissions or fixed unit quantity, and trading costs are relatively low. It is only concerned with spread. The FOREX market is opened around the clock, so investors can trade at their preferred time. Unlike investors in mid-cap and small-cap stock markets, no individual investor in FOREX is able to dominate the FOREX market. In addition, FOREX trading is usually leveraged. Investors can control a very large amount of total contract value with a small margin. Leverage gives investors the ability to make high profits (but at the same time the losses are amplified). High liquidity, low barriers to entry, and the ubiquity of a variety of free tools on the market are also benefits of FOREX trading.
Please note: Margin FX and CFD trading carries a high level of risk and is not suitable for all investors. Please read the Risk Disclosure Statement carefully before choosing to start trading.
There are many factors affecting the medium and long-term trend of the FOREX market, including interest rates, gross domestic product (GDP), US non-farm payrolls (NFP), consumer price index (CPI), producer price index (PPI), durable goods orders, claims for unemployment benefits, industrial production index, trade balance, unemployment rate, retail sales, etc. Differences between published data and expectations will have different impacts on currency pairs.
The NFP of the US is one of the important factors affecting FOREX. Increases in NFP and average wages indicate that employment growth and potential inflationary pressure have increased. In many cases, the Fed will inhibit them by hiking interest rates, benefiting the US dollar. On the other hand, NFP's continual decline would mean that the economy is slowing down to some extent, leading to an increase in likelihood of reduced interest rates and hurting the US dollar.
In addition, decisions of central banks' in different countries on interest rates are another important factor that affects FOREX. In the US, for example, interest rates are determined by the Federal Open Market Committee (FOMC). Interest rate decisions are important because central banks in different countries will formulate monetary policy and interest rate decisions based on a combination of economic growth, domestic inflation and unemployment. Therefore, interest rate decisions determines a country's path of interest rates for a period of time in the future.
If the central bank in a country decides to lower interest rates, future returns on cash deposits will fall, causing local currency funds to flow from banks to the market, encouraging investment and consumption, and boosting economic growth. At the same time, the market demand for the country's currency will drop due to lower yields, increasing the currency's depreciation pressure. In contrast, a rise in the interest rate will increase borrowing costs, and reduce the liquidity in the market. Therefore, it has the effect of suppressing consumption and curbing inflation. Meanwhile, higher yields will attract more money converted into the country's currency, increasing the likelihood of currency appreciation.
There are a wide variety of FOREX currency pairs. To engage in FOREX trading, investors generally choose to start with major currency pairs. Major currency pairs refer to those involving the US dollar. The most popular currency pairs are EUR/USD, USD/JPY, etc.
This is because the countries represented by the currency pairs have great international influences and high trading volumes. The currencies are highly liquid in the market and have dramatic volatility. There are frequent major economic news and data releases (for example: NFP, inflation rate, and central bank policy) for investors to analyse currency trends. Therefore, it will be relatively simple for investors to start with these currency pairs.
Yes. FOREX trading refers to transactions in which the investor buys one currency while selling the other currency. Currencies are traded through agents or brokers in pairs, such as AUD/USD or GBP/JPY.
Major Global Currency Pairs
|Currency Pair||Countries||FX Geek Speak|
|EUR/USD||Eurozone / United States||euro dollar|
|USD/JPY||United States / Japan||dollar yen|
|GBP/USD||United Kingdom / United States||pound dollar|
|USD/CHF||United States/ Switzerland||dollar swissy|
|USD/CAD||United States / Canada||dollar loonie|
|AUD/USD||Australia / United States||aussie dollar|
|NZD/USD||New Zealand / United States||kiwi dollar|
Take the NZD for example. NZ stands for New Zealand and D stands for dollar.
The currency pairs shown in the above chart are often referred to as “major currency pairs”, because they are most heavily traded.
Participants in the FOREX market mainly include commercial banks, which are the backbone of the FOREX market. Most large FOREX trades are executed at FOREX banks.
They also include FOREX brokers who provide FOREX trading brokerage services. Usually, they must be approved by a local central bank branch. FOREX brokers generally do not trade FOREX. They only serve as a bridge between FOREX buyers and sellers on a handling fee or commission basis.
In addition, there are importers and exporters and other FOREX suppliers and demanders. Importers and exporters are not only FOREX demanders (when they import goods) but also suppliers (when they export goods). Other FOREX suppliers and demanders refer to non-trade FOREX buyers and sellers, such as tourists.
Finally, there are FOREX speculators, multinational corporations, central banks and FOREX administrative agencies engaged in FOREX trading. CFD trading participants mainly include trading brokers, speculators, their liquidity providers and exchanges.
Trading hours in the FOREX market are divided into four sessions: Sydney hours, Tokyo hours, London hours, and New York hours. Following is a schedule of the opening and closing hours for each market:
|Time Zone||Greenwich Mean Time GMT|
|New York Open||12:00pm|
|New York Close||9:00pm|
Greenwich Mean Time GMT
|New York Open||1:00pm|
|New York Close||10:00pm|
As the schedule shows, there are always some trading hours overlapping for two markets. These hours are the busiest trading time in a day with much greater trading volumes, as most investors choose to trade during such hours.
FOREX is quoted in currency pairs, such as GBP/USD or USD/JPY. In each of your FOREX trades, you buy one currency and at the same time you sell another. Take GBP/USD for example: GBP/USD = 1.51258
The currency to the left of the slash ("/") is called the base currency (the pound in the example), and the currency to the right is the counter currency (the dollar in the example). The base currency is the "basis" on which you buy and sell currencies. If you buy GBP/USD, that means you buy the base currency and sell the counter currency, that is, you "buy pounds and sell dollars." If you believe the base currency will appreciate relative to the counter currency (the exchange rate rises), then you should buy it. Conversely, if you believe that the base currency will depreciate relative to the counter currency (the exchange rate drops), then you should sell it.
Can't find the answer you need? Contact us