FX
- Foreign Exchange is a global market for exchanging national currencies with one another
- Foreign exchange trading utilizes currency pairs, priced in terms of one versus the other
- The foreign exchange market is an over-the-counter (OTC) marketplace that determines the exchange rate for global currencies
- Aside from providing a venue for the buying, selling, exchanging, and speculation of currencies, the forex market also enables currency conversion for international trade settlements and investments
- It is comprised of a global network of financial centers that transact 24 hours a day, closing only on the weekends
- It is, by far, the largest financial market in the world
- It is estimated that the daily trading volume in the currency market is over $5.1 trillion, which is dominated by the U.S. dollar
- The largest trading centers are London, New York, Singapore, Hong Kong, and Tokyo
The most liquid trading pairs are, in descending order of liquidity:
- EUR/USD
- JPY/USD
- GBP/USD
Benefits of Using the Forex Market
There are some key factors that differentiate the forex market from others, like the stock market.
- There are fewer rules, which means investors aren't held to the strict standards or regulations found in other markets
- There are no clearing houses and no central bodies that oversee the forex market
- Most investors won't have to pay the traditional fees or commissions that you would on another market
- Because the market is open 24 hours a day, you can trade at any time of day, which means there's no cut-off time to be able to participate in the market
- Finally, if you're worried about risk and reward, you can get in and out whenever you want, and you can buy as much currency as you can afford based on your account balance and your broker's rules for leverage