What is Foreign Exchange Trading?
The foreign exchange market, commonly known as “Forex” or “FX”, is the exchange of one currency for another at an agreed-upon price.
A trader buys one currency and selling another at the same time, and this is why exchange rates are expressed in terms of currency pairs. You buy dollars for pounds; you sell roubles for South African Rand – by definition, you cannot buy or sell a given currency without acquiring another one.
The value of currencies changes constantly, due to events in:
The common goal of traders is to profit from these changes in the value of one currency against another - by actively speculating on which way currency prices are likely to turn in the future.
How does the market function?
The global currency market is very different from those of stock markets.
There are no local forex markets: Currencies are traded in one single global forex market that operates 24 hours a day, from 10 p.m. GMT on Sunday to 10 p.m. GMT on Friday.
There are, however, local market hours that have an effect on trading, even if trading does not cease when these market close – for example, the London Forex Market opens at 8:00 a.m. GMT on Monday and closes that evening at 5:00 p.m. GMT. Trading in the British pound goes on without the slightest interruption after 5:00 p.m. GMT.
But there are a great deal more trades of the British pound during the opening hours of the London market, and there are specific trading patterns observable during open market hours.