Forex Market
Foreign exchange, or as it is referred to many times:
“forex”, “fx”, or “currency exchange market”, is the
term used to describe
the trading of world currencies. A currency trade is the
simultaneous buying of one currency and selling of
another one, e.g.
Buying US dollars with euros, buying British pounds with
US dollars, selling Swiss francs for Japanese yens etc.
The currency
combination used in the trade is called a pair. We will
dive more into this later on.
The forex market is by far the largest financial market
in the world. Just to put things into perspective, the
New York Stock
Exchange (NYSE) daily volume fluctuates around US$30
billion per day. Forex market daily volume is estimated
to be around
US$1.5 trillion! In fact, daily world stock and bond
market volume added up is only a fraction of the daily
forex trading volume.
We always hear the word “market” after mentioning forex
and this usually invokes the idea of a central market
place like the New York,
NASDAQ or London stock exchange. This is not the case in
the forex market. The forex market is considered an over
the counter (OTC)
or “Interbank” market, due to the fact that transactions
are conducted between two counterparts via an electronic
network or over
the phone. Trading is not centralized on an exchange as
in the case of stocks and futures. This is also the
reason why the forex
market is a 24 hour market.
The following shows at what times forex trading takes
place around the world:
|
Time Zone - GMT |
|
City |
Open |
Close |
| Tokyo |
23:00 |
08:00 |
| London |
07:00 |
16:00 |
| New York |
12:00 |
21:00 |
The major dealing centers today are London and New York,
together covering approximately 50% of the daily trading
volume.
This is also the reason why most of the action in the
forex market happens within those timeframes (7 GMT –
21:00 GMT).
As you learn more and more about the forex market you
will see that different forex trading strategies can be
designed for different
times within the 24 hour trading period.
As an example, throughout the Asian session it is common
that most currency pairs do not trend much. In other
words, they tend
to move in a range. This is not always the case, but it
is more common than not. Throughout the European session
and the US session
it is very common to see great volatility in many of the
liquid currency pairs. Most opportunities for am
intraday forex swing trading
system occur during these times.
As a forex trader it is very important that you employ
systems that fit the period of the day you are trading
in. Of course, if you are a
forex swing trader looking at medium to long term
opportunities it is irrelevant the sessions specific
volatility.
In conclusion, the forex market has opened the doors to
new and exciting opportunities for the smart trader. For
those who have been
trading for some time other markets, you know that it is
a traders dream to have such a volatile and liquid
market not to mention the speed
of real time price fills today's forex brokers provide.
Good luck!
Avi Frister
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