Forex Trading – Introduction

Forex Market is an exciting place. The one good thing about entering into the forex market is that you can trade anytime as per your convenience.

The global Foreign exchange market (‘FX’, ‘Forex’ or ‘FOREX’) is the largest market in the world as measured by the daily turnover with more than US$5 trillion a day eclipsing the combined turnover of the world’s stock and bond markets. The forex market measuring a propelling turnover is one of the many reasons why so many private investors and individual traders have entered the market. The investors have discovered several advantages many of which are not available in the other markets.

What is Forex?

Forex (in simple terms, currency) is also called the foreign exchange, FX or currency trading. It is a decentralized global market where all the world’s currencies trade with each other. It is the largest liquid market in the world.

The liquidity (more buyers and sellers) and competitive pricing (the spread is very small between bid and ask price) available in this marked are great. With the irregularity in the performance in other markets, the growth of forex trading, investing and management is in upward trajectory.

Why Trade Forex?

So, why trade Forex? There are many reasons to trade in Forex. If we ask four different people, you might get more than four different answers. Primarily, making money is the most frequently cited reason for why trade Forex.

Let us now consider the following reasons why so many people are choosing forex market −

Forex market never sleeps

The Forex market works 24 hours and 5-1/2 days a week. Because governments, corporates and private individual who require currency exchange services are spread around the world, so trading on the forex market never stops. Activity on the forex market follows the sun around the world, so right from the Monday morning opening in Australia to the afternoon close in New York. At any point of the day you can find an active pair to trade.

Long or Short

A trader in forex can trade both ways. It means a forex trader can play the market and make profits irrespective of whether market is going up, down or is in tight range. So irrespective of the event that has triggered the movement – forex traders do not care.

Low transaction cost

Most forex accounts trade with little or no commission and there is no exchange or data license fees. Generally, the retail transaction fee (the bid/ask spread) is typically less than 0.1% under normal market conditions. With larger dealers (where volumes are huge), the spread could be as low as 0.05%. Leverage plays a crucial role here.

Leverage

Leverage is the mechanism by which a trader can take position much larger than the initial investment. Leverage is one more reason why you should trade in forex. Few currency traders realize the advantage of financial leverage available to them. For example, if you are trading in equity market, the maximum leverage a stock broker is offered is 1:2 but in case of forex market, you will get a leverage up to 1:50 and in many parts of the world even higher leverage is available. For this reason, it is not hard to see that why forex trading is so popular.

High leverage allows a trader with small investment to trade higher volumes of currencies and thus provide the opportunity to make significant profits from the small movement in the market. However, if the market is against your assumption you might lose significant amount too. Therefore, like any other market, it is a two-way sword.

High Liquidity

The size of forex market is enormous and liquid by nature. High liquidity means a trader can trade with any type of currency. Timing is not a constraint as well; trading can be done as per your convenience. The buyers and sellers across the world accept different types of currencies. In addition, forex market is active 24 hours a day and is closed only on the weekends.

Accessibility

Getting started as a currency trader would not cost a ton of money especially when compared to trading stocks, option or future market. We have online forex brokers offering “mini” or “micro” trading accounts that let you open a trading account with a minimum account deposit of $25. This allows an average individual with very less trading capital to open a forex trading account.

Who Trades Forex?

The forex market is enormous in size and is the largest market with millions of participants. Hundreds of thousands of individuals (like us), money exchangers, to banks, to hedge fund managers everybody participates in the forex market.

When can you trade forex?

Forex market is open 24 hours a day and 5 days a week. However, it does not mean it is always active. Let us check what a 24-hour day in the forex world looks like.

The forex market is divided into four major trading sessions: the Sydney session, the Tokyo session, the London session and the New York session.

Forex Market Hours

The following table shows the opening and closing time of each session.

Summer Session (Around April – October)

TIME ZONE EDT GMT
Sydney open 6:00 PM 10:00 PM
Sydney close 3:00 AM 07:00 AM
Tokyo Open 7:00 PM 11:00 PM
Tokyo Close 4:00 AM 08:00 AM
London Open 03:00 AM 07:00 AM
London Close 12:00 PM 04:00 PM
New York Open 08:00 AM 12:00 PM
New York Close 05:00 PM 09:00 PM

Winter (Around October – April)

TIME ZONE EST GMT
Sydney Open 04:00 PM 09:00 PM
Sydney Close 01:00 AM 06:00 AM
Tokyo Open 06:00 PM 11:00 PM
Tokyo Close 03:00 AM 08:00 AM
London Open 03:00 AM 08:00 AM
London Close 12:00 PM 05:00 PM
New York Open 08:00 AM 01:00 PM
New York Close 05:00 PM 10:00 PM

Note − The actual opening and closing timing of forex market depends on local business hours

We can see in the above chart that in between different forex trading session(region wise), there is a period of time where two sessions (region time) are open at the same time.

There is always more volume of trade when two markets (in different regions) are open at the same time.