Currency Trading for Beginners

The Foreign Exchange Market which is also called as the Forex or the Fx market is a huge financial market with daily market volumes of $3-4 trillion. The Forex market is the largest and most liquid financial market in the world.

 

Forex Market History

The Forex Market began during the 1970s after 30 years of government restrictions regarding the foreign exchange transactions. The Forex market began after the end of the Bretton Woods Agreement which actually became a global monetary system for 30 years. The Forex market was born as the world's major countries gradually switched from fixed currency rates (Bretton Woods) to floating exchange rates.

 

Forex Market Characteristics

(1) The 24-hour operation, 5 days per week (Operating from Sunday 20:15 GMT to Friday 22:00 GMT)

(2) Enormous liquidity, tight spreads

(3) Wide geographical distribution (London in the largest Forex center in the world)

(4) Low margin requirements and very high capital leverage

 

Forex Market Participants

There are many different participants in the Forex Market:

1) Central Banks

2) Commercial Banks

3) Global Trade Companies

4) Forex Brokers

5) Institutional Investors

6) Retail Traders

Central Banks: US Federal Reserve | European Central Bank | Bank of Canada | Bank of England | Bank of Japan | Reserve Bank of Australia | Swiss National Bank

 

Forex Market Trading Sessions

There are three main Forex sessions for the winter time zone and three for the summer time zone:

Forex Time Zone

GMT (open-close)

EST (open-close)

Winter Time Zone (October to April)

 

 

New York

1:00 PM
10:00 PM

8:00 AM
5:00 PM

London

8:00 AM
5:00 PM

3:00 AM
12:00 PM

Tokyo

12:00 AM
9:00 AM

7:00 PM
4:00 AM

Summer Time Zone (April to October)

 

 

New York

12:00 PM
9:00 PM

8:00 AM
5:00 PM

London

7:00 AM
4:00 PM

3:00 AM
12:00 PM

Tokyo

12:00 AM
9:00 AM

8:00 PM
5:00 AM

 

Forex Volume Analysis

The daily volume activity in the currency market is absolutely gigantic. This is a typical breakdown of a $4 trillion daily volume:

  • $1.765 trillion in foreign exchange swaps

  • $1.490 trillion in spot transactions

  • $0.475 trillion in outright forwards

  • $0.207 trillion in options and similar products

  • $0.043 trillion in currency swaps

Chart: The distribution of Forex daily volumes

Forex Industry

 

Which Currencies are traded in the Foreign Exchange Market

The majority of the volume in Forex trading is generated by 18 currency pairs. The eight currencies most often traded in Forex are:

  1. U.S. dollar (USD)

  2. Canadian dollar (CAD)

  3. Euro (EUR)

  4. The British pound (GBP)

  5. Swiss franc (CHF)

  6. New Zealand dollar (NZD)

  7. The Australian dollar (AUD)

  8. Japanese yen (JPY)

In total, hundreds of different currencies are traded in pairs. Currency pairs are categorized in majors, minors and exotic pairs. The most-traded Forex currency pairs that generate about 85% of the total volume are the following:

  • EUR / USD – Euro / US Dollar

  • GBP / USD – British Pound / US Dollar

  • USD / JPY – US Dollar / Japanese Yen

  • USD / CAD – US Dollar / Canadian Dollar

  • AUD / USD – Australian Dollar / US Dollar

  • USD / CHF – US Dollar / Swiss Franc

Each Forex pair is expressed in units of the quote currency. In each Forex pair, the former currency is called the base currency and the latter currency is the counter or the quote currency.

 

 

What Moves Forex Currencies

The main factor affecting currency fluctuation is global demand and supply. When the world demands more dollars, then the value of the dollar increases in relation to other currencies, and vice versa. In general, the demand for a particular currency is determined by monetary policies (especially interest rates), by new macroeconomic data (especially by unemployment, inflation, and GDP), but also by political, social, strategic, and physiological factors.

 

Capital Investor

Forex Trading for Beginners

 

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