What is Forex (FX) and How does Forex Trading Work?
Trading forex involves buying one
currency and selling another
simultaneously. Through careful
analysis, traders predict the potential
direction of currency prices and
attempt to capture gains based on
price fluctuations. There is no
centralised exchange for forex
trading. Rather, it takes place
electronically or online, between
networks of global computers. The
market is open 24 hours a day, 5
days a week.
How Do Forex Markets Work?
Forex is the most popular over-the-counter (OTC) market. In forex, currencies are bought and sold through a network of banks. As there
is no exchange, forex trading is decentralised and trading can take place 24 hours per day. There are 4 main trading sessions, namely
Sydney, London, New York and Tokyo.
The most popular forex market type is the spot forex market. In forex, spot trades involve the exchange of currency pairs electronically
using an online trading platform. Other market types include the forward forex market and futures forex market.
Keep in mind that timings in some countries, like Australia,
the US and UK, shift to/from daylight savings time in
October/November and March/April. So, plan your trades
accordingly. Market liquidity for currency pairs depends on
the forex trading sessions. For instance, the EUR/USD pair
shows a lot of movement and liquidity during the confluence
of the London and New York sessions. The AUD/USD pair
shows maximum movement in the Tokyo and London
sessions. Once you know when to trade, the next step is to
learn the jargon. So, here are some terms and concepts you
will come across in the market.
