Forex is one of the most widely traded markets in the world. A network of computers make up this market, rather than a physical exchange with a set closing time.
The forex market follows the sun; opening with the start of trading in Japan (Sunday night in the UK) and closing when trading concludes in the US on Friday night (around 10pm GMT). This is why it is possible to trade forex 24 hours a day, five days a week.
The other reason why forex is traded 24 hours a day? Forex is one of the most liquid markets in the world, meaning it is traded in very high volumes. Over $1.5 trillion worth of currencies were traded worldwide every day in 2016 alone.
So there will always be someone, somewhere wanting to buy or sell a certain currency against another.
What is forex trading?
Forex (also known as foreign exchange or FX) is always traded in pairs. When you trade forex, you buy or sell the value of one currency against another for a potential profit. For example, in the currency pair GBP/USD, GBP would be the base currency and USD the counter currency.
You would always buy or sell the base currency (GBP) against the counter currency (USD), depending on whether you think the base currency will rise or fall in value against the counter currency. So if you feel GBP will rise against USD, you would buy GBP/USD and if you believe GBP would fall in value against the US dollar, you would sell the currency pair. You would make a profit or loss based on fluctuations in the exchange rate of the two currencies.
Forex can also be traded as a spread bet or CFD. And there’s an added bonus with trading forex as a spread bet (UK only) or CFD. Because you don’t own the underlying asset, you won’t pay stamp duty. Your trades will also be free from Capital Gains Tax when you spread bet forex in the UK.
How large is the forex market?
Few investors are aware of how large in volume the forex market is. Demand for forex is high. The US dollar is the most widely traded currency. The main market players are institutions, governments, banks, as well as individual traders.
What are the main currency pairs?
FX is always quoted and traded in pairs. The first currency (the base) is the one you placed a trade on, based on whether you believe it will go up or down again the second or counter currency.
There are four main currency pairs:
- EUR/USD: euro and US dollar
- USD/JPY: US dollar and Japanese yen
- GBP/USD: British pound sterling and US dollar
- USD/CHF: US dollar and Swiss franc
The main currency pairs see the most action. They are the most liquid and widely traded.
When are the major FX markets open?
The major FX markets are open 24 hours a day, Sunday through Friday. The three largest market centres are London, New York and Tokyo. The trading week begins in Tokyo on Monday at 8am local time (11pm GMT on Sunday night), followed by the London market at 8am GMT and finally at 8am in New York (around 1pm GMT).
On Friday, the forex market will wrap up at 4pm local time in Tokyo (8am GMT), 5pm GMT in London and finally at 4pm local time in New York (10pm GMT).
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