Foreign Exchange Market

What Is Forex?

The foreign exchange market is the place where currencies are traded each other.The Forex market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global forex and related markets is continuously growing. Traditional turnover was reported to be over US$ 3.2 trillion in April 2007 by the Bank for International Settlement. Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008 (Wikipedia).

The Forex market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide in the major financial centers of London, New York, Tokyo, Frankfurt, Singapore, Paris and Sydney - across almost every time zone. This means that when the trading day in the U.S. ends, the forex market begins anew in Tokyo and Hong Kong. As such, the forex market can be extremely active any time of the day, with price quotes changing constantly.

Forex trading hours:
New York opens 8:00 am to 5:00 pm EST
Tokyo opens 7:00 pm to 4:00 am EST
Sydney opens 5:00 pm to 2:00 am EST
London opens 3:00 am to 12:00 noon EST

Reading a Forex Quote

The Forex exchange rate between the U.S. dollar (USD) and the Euro (EUR), the forex quote would look like this:

EUR/USD = 1.264

The currency to the left of the slash is the base currency, while the currency on the right is called the quote or counter currency. The base currency (in this case, the Euro) is always equal to one unit (1 Euro), and the quoted currency (U.S Dollar) is what that one base unit is equivalent to in the other currency. The quote means that 1 Euro = 1.264 U.S Dollar. In other words, 1 Euro can buy 1.264 U.S Dollars.