8. Understand the Foreign Exchange (FX / Forex) Market

Understand Foreign Exchange (FX / Forex) Market | Z Academy

With economic globalization, the interaction of economic activities among countries, including trade, tourism, consumption, and investment in various assets, is becoming more and more frequent.

In the process, currency transactions naturally occur.

Forex / FX is the financial market which deals with currency transactions all over the world in a decentralized form. 

 

Global Forex Participants

The forex market does not have a physical entity, and most of the transactions happen in OTC markets. With the popularity of communication networks, trading is no longer limited by time or distance. The development of technology has also made forex trading electronic, providing great flexibility and low transaction costs so that there is almost no threshold to participate in forex trading. 

Participants in the forex market include;

  • the central bank
  • the government
  • investment banks
  • commercial banks funds
  • financial institutions
  • major enterprises
  • importers and exporters
  • speculators
  • ordinary investors

 

As a result, the exchange market is a market with the largest trading volume and the strongest liquidity in the world.

Related Article: What is market liquidity?

 

Every three years, the Bank for International Settlements (BIS), reports the average daily volume of transactions.  The global forex market was $6.6 trillion in April 2019, up nearly 30 percent from $5.1 trillion in 2016.

The purpose of participating in the forex market is the promotion of international trade and investment,  speculation and carry trades. 

 

Is the Forex market open 24 hours a day? 

With the development of information and technology, time and distance restrictions have disappeared. Major financial centres globally are connected and linked more than ever before. Including Sydney to Tokyo, Hong Kong and Singapore, and then from Frankfurt to London and New York.

When the Asian trading session ends, the European trading session begins, followed by the North American trading session, and back to Asia. Therefore, the forex market dominated by OTC trading has become a place that can trade 24 hours a day, five days a week.

Only in the event of weekends and major festivals in various countries, the forex trading hours will be adjusted. 

In addition, 24-hour trading in forex has become more popular due to the rise of retail forex brokers and online forex trading platforms since 2000. Forex brokers have lowered the entry barrier, allowing smaller traders around the world to connect with the global forex market through their platforms. In addition to making the forex market more active and giving it ample liquidity, it also makes the entire currency market ecosystem more complete. 

 

Next Article: 9. What is market liquidity in forex?

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Understand Foreign Exchange (FX / Forex) Market | Z Academy

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Risk Warning: The above content is for reference only and does not represent ZFX’s position. ZFX does not assume any form of loss caused by any trading operations conducted by this article. Please be firm in your thinking and do the corresponding risk control.

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