Forex, short for “foreign exchange,” refers to the global marketplace where currencies are bought and sold. It is the largest and most liquid financial market in the world. The forex market operates 24 hours a day, five days a week, and it involves the exchange of currencies between various participants, including central banks, financial institutions, corporations, governments, and individual traders.
Participants in the forex market aim to profit from the changes in currency exchange rates. Traders can buy one currency and sell another with the expectation that the value of the purchased currency will increase relative to the sold currency. The forex market provides opportunities for speculation, hedging, and diversification for participants ranging from large financial institutions to individual retail traders.
In forex trading, currencies are quoted in pairs, such as EUR/USD (Euro/US Dollar) or USD/JPY (US Dollar/Japanese Yen). The first currency in the pair is the base currency, and the second is the quote currency. The exchange rate represents the amount of the quote currency needed to purchase one unit of the base currency.
It’s important to note that forex trading involves risks, and individuals should have a good understanding of the market, risk management strategies, and market analysis before participating in forex trading.
The forex market operates 24 hours a day, five days a week, providing ample opportunities for trading. The market is divided into different trading sessions, each associated with major financial centers around the world. Here are the key forex trading sessions:
- Sydney Session:
Opens at 10:00 PM GMT on Sunday and closes at 7:00 AM GMT on Monday. - Tokyo Session:
Opens at 12:00 AM GMT and closes at 9:00 AM GMT. - London Session:
Opens at 8:00 AM GMT and closes at 5:00 PM GMT. - New York Session:
Opens at 1:00 PM GMT and closes at 10:00 PM GMT.
This is the first currency set that appears in the forex pair. It’s the one that’s bought or sold for the quote currency. In the example above, the GBP is the base currency.
This is the price that a trader is willing to buy a currency pair at. It constantly fluctuates.
The difference between the bid and the ask price is called the spread.
This is the second currency that appears in the pair, and is also known as the ‘counter currency’. In the example above, the USD is the quote currency.
This is the price that a trader would ask for when selling the currency pair. The ask price also changes constantly and is driven particularly by market demand.
Pip is an abbreviation for point in percentage and is the unit of measurement used to express the change in value between two currencies.
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