Title: Forex Market Overview: Trends, Key Concepts, and Practical Strategies
Original Author: Bitget News Team
Original Source: Bitget News — “What is Forex?”
Link: https://www.bitget.com/news/detail/12560605129741
The forex market, known as the foreign exchange market or simply FX, is a globally decentralized marketplace where national currencies are traded. Operating 24 hours a day, five days a week, the forex market is the largest and most liquid financial market in the world. Participants range from central banks and financial institutions to retail investors. This article explores the structure, participants, terminology, benefits, risks, and strategies associated with the forex market, building on insights shared by Bitget News.
What Is Forex?
Forex is the shorthand name for the foreign exchange market, where currencies are bought and sold against each other. The primary motive behind forex trading is either hedging against international currency and interest rate risk or speculating on geopolitical events, interest rates, or the global macroeconomic outlook.
Key Characteristics of the Forex Market
– Decentralized structure, meaning it operates without a central exchange
– Open 24 hours a day from 5 PM EST on Sunday until 5 PM EST on Friday
– Divided into major trading sessions: Asian (Tokyo), European (London), and North American (New York)
– Extremely high liquidity due to the sheer volume of trades
– Allows leveraging for greater exposure with smaller capital
– Offers opportunities for both short-term traders and long-term investors
How Forex Trading Works
Unlike stock markets, forex trading occurs over the counter (OTC), meaning transactions happen directly between parties, usually through electronic trading networks or over the telephone. The trading is conducted in currency pairs, and traders speculate on the rise or fall of one currency relative to another.
For example, the EUR/USD pair represents the euro quoted against the US dollar. If a trader believes the euro will appreciate against the dollar, they would buy the EUR/USD pair. If they expect the dollar to strengthen, they would sell the pair.
Major Currency Pairs
There are numerous currency pairs in the forex market, but some are more frequently traded than others. These are known as the “major pairs,” and they consist of the most liquid and widely used currencies globally.
The most commonly traded major pairs include:
– EUR/USD (Euro/US Dollar)
– USD/JPY (US Dollar/Japanese Yen)
– GBP/USD (British Pound/US Dollar)
– USD/CHF (US Dollar/Swiss Franc)
– AUD/USD (Australian Dollar/US Dollar)
– USD/CAD (US Dollar/Canadian Dollar)
Currency pairs are typically quoted to four decimal places, except for the Japanese yen pairs, which are quoted to two decimal places.
Participants in the Forex Market
The forex market comprises various participants, each with different motives and strategies:
– Central Banks: These institutions regulate national monetary policy, control money supply, and often intervene in the forex market to stabilize their domestic currency.
– Commercial Banks:Major players that execute large volumes of trading activities on behalf of clients and their own accounts.
– Corporations: Businesses that engage in international trade use the forex market to hedge currency risk when buying or selling goods across borders.
– Institutional Investors: Fund managers, hedge funds, and pension funds enter the forex market for portfolio diversification and return enhancement.
– Retail Traders: Individual investors using online platforms to speculate on currency movements.
– Governments and Treasuries: Participate to manage national economic interests and foreign exchange reserves.
What Influences Currency Prices?
Currency values are influenced by multiple economic, political, and social factors. Traders must stay informed on global developments to anticipate price changes.
Some key drivers of currency prices include:
– Interest rates: Higher interest rates often attract more capital inflows, increasing demand for a currency.
– Inflation: Low inflation is typically associated with a stable currency.
– Economic indicators: GDP growth, job data, consumer spending, and manufacturing reports
Read more on EUR/USD trading.