Introduction to Forex Market
What is Forex?
The forex, or foreign exchange, market is a decentralized market where currencies are bought and sold. Its parti- cipants include banks, commercial companies, investment management companies and hedge funds, as well as retail market players and forex brokers. The forex market is the largest financial market in terms of turnover. Daily transaction volume in the currency market exceeds $5 trillion that is more than the futures and equity markets combined. Such enormous size also means that the foreign exchange market is the most liquid, and as a trader, you can easily buy and sell any currency of your choice.
Forex Market vs Other Markets
NY Stock Exchange
The forex market is a global decentralized network of independent exchanges, each of which is open from Monday to Friday. Trading hours in the four major exchanges allow for 24-hour trading, and activity in the major exchanges can overlap creating even more trading opportunities.
Here are the trading hours of these four major exchanges (EST):
Forex market players trade currency pairs like, for example, AUD/USD, EUR/JPY, GBP/USD and many other. A currency pair is the quotation of two currencies that indicates how much of the second (the quote) currency is needed to buy 1 unit of the first (or the base) currency.
Currency pairs do not represent a single unit. You cannot buy or sell a currency pair like you can, for instance, buy a share of a company stock in the stock market. Instead, a foreign exchange trade implies simultaneous purchase of one currency and sale of other.
Depending on a trading volume and liquidity, currency pairs are divided into major, crosses, and exotics. Major currency pairs include the major currencies versus the US Dollar. These are, for instance, EUR/USD, GBP/USD, USD/JPY, USD/CHF, AUD/USD, and USD/CAD. Crosses, or minor currency pairs, consist of widely traded currencies excluding the US Dollar like, for instance, GBP/JPY and EUR/GBP. Crosses are less liquid than major currency pairs and have wider spreads. Finally, exotic currency pairs include currencies of emerging markets.
The US Dollar is the most traded currency in the world that participates in 87.6% of all forex trades. Other popular currencies are Euro, Japanese Yen, Pound Sterling, Australian Dollar, and Canadian Dollar.
Top 10 Traded Currencies
Source: Bank for International Settlements (BIS)
Forex trading is easily accessible for individual investors. Everything you need to start trading is an initial deposit starting from €250 or $250 and a copy of your supporting documents. There are no entry barriers, and trading costs are very low. At FXCM Capital, we do not charge you any fees or commissions. The only trading cost is the spread, or the difference between the buying and selling price.
The forex market is an ideal choice for individual investors due to its strong technological infrastructure, accessibility, availability of costless leverage, and sufficient volatility and liquidity.