In 1944 44 countries in conjunction with USA evolved new global monetary system “Bretton Woods System”, The primary idea at the back of this system turned into to tie different currencies to US Dollar that is convertible into gold (X US Dollars in keeping with an ounce of gold).
Foreign market is a diverse platform in which distinctive currencies are traded towards one another, this article emphasizes the utmost foundation of foreign exchange market to apprehend it better.
Global Foreign Exchange (Forex) market operations time
Forex market is the place where different currencies are traded against one another, and this article we explore basis of forex market to understand it better
Average daily turnover in the global foreign exchange market from 1998 to 2019 Source: statista
| Yeear | Average daily turnover (in trillion US dollars) |
|---|---|
| 1998 | 1.5 |
| 2001 | 1.2 |
| 2004 | 1.9 |
| 2007 | 3.3 |
| 2010 | 3.9 |
| 2013 | 5.3 |
| 2016 | 5.0 |
| 2019 | 6.5 |
Global Foreign Exchange (Forex) market operations time
From Monday to Friday, forex exchange market operates *24 Hours a day for the duration of the globe, as forex market from one region of the sector closes the very next region opens.
Following model summarizes round the clock operations of forex market.
| Forex Market | Opening Time (GMT)) | Closing Time (GMT)) |
|---|---|---|
| Sydney | 22:00 | 06:00 |
| Tokyo | 24:00 | 09:00 |
| London | 08:00 | 16:00 |
| New York | 13:00 | 22:00 |
Understanding the structure of Forex market
Forex market stockholders can be explained into following jargons
Level 1: Interbank
This level is based on the banks to exchange currencies with each other.
Level 2: Forex Brokers
Forex brokers are considered to linked with the banks and offer forex trading resources to their customers.
Level 3: Forex Traders
Forex traders are considered retail forex traders who intend to trade in terms of different currencies by using forex agents.
These are four major classifications in which forex market stockholders are divided
- Central Banks and Governments
- Financial Institutes like Commercial Banks
- Commercial Companies
- Speculators
Central Bank and Governments
Central banks, which reflects in terms of their nation’s government, are considered extremely significant players in the forex market. Open market operations and interest rate policies of central banks influence currency rates to a very large extent.
A central bank is liable for fixing the fee of local currency on forex market. This blatantly shows the rate of exchange regime by which currency will trade inside the open market. Exchange rate regimes are divided into floating, fixed, and pegged types.
Financials Institutes like commercial Bank
Products supplied at retail and commercial banks encompass checking and financial savings accounts, certificates of deposit (CDs), personal and mortgage loans, credit cards and enterprise banking accounts.
Commercial Companies.
A company that has to follow normal accepted business practices and operates in order to make a profit.
Speculators
A speculator considered a person or company, as the name suggests, speculates that the price of securities will pass up or down and trades the securities based totally on their speculation. Speculators also are those who create fortunes and start, fund, or assist to grow businesses. Venture capitalists, private equity corporations, and hedge funds are all represents speculators.
Forex Trading pairs
Pairs are being utilized in order to incorporate with forex market, they intend to help to buy currency that will have to sell equivalent of another currency.
To buy GBP (British pound sterling) you will sell USD (United States Dollar)
The first currency in the following pair known as base currency, as example shows GBP is called to be base currency.
The second currency in the following pair known as quote currency, USD in the above given example is considered as a quote currency.
Above mentioned pair is known as GBPUSD.
A simple trade scenario
- Current market price for GBPUSD pair is 1.4100 to buy one GBP (the base currency). This means you will have to give USD 1.4100 (the quote currency) to buy one GBP (the base currency).
Current market price for GBPUSD pair is 1.4100 to shop for one GBP (the base currency).
According to this approach you should deliver USD 1.4100 (the quote foreign money) to buy one GBP (the base foreign money)
Major Currency Pairs
Following are the foremost foreign money pairs traded in foreign exchange market, these predominant pairs constitute almost 80% of each day exchange volume on international forex marketplace.
| Pair | Description | Nick Name |
|---|---|---|
| EUR/USD | Euro / United States Dollar | Euro |
| USD/JPY | United States Dollar / Japanese Yen | Gopher |
| GBP/USD | British Pound Sterling / United States Dollar | Cable |
| USD/CHF | United States Dollar / Swiss Franc | Swissie |
| USD/CAD | United States Dollar / Canadian Dollar | Loonie |
| AUD/USD | Australian Dollar / United States Dollar | Aussie |
| NZD/USD | New Zealand Dollar / United States Dollar | Kiwi |
Crosses
Currency pairs not related to USD at once are known as crosses, to alternate in such foreign money pairs you’ll trade first a couple that entails USD.
Example
TO trade EURO/JPY pair you may ought to.
Exchange EUR to USD the use of EUR/USD pair.
Covert USD to JPY using the USD/JPY pair.
Some of the common cross pairs are.
| Pair | Description |
|---|---|
| GBP/JPY | British Pound Sterling / Japanese Yen |
| EUR/JPY | Euro / Japanese Yen |
| AUD/JPY | Australian Dollar / Japanese Yen |
| NZD/JPY | New Zealand Dollar / Japanese Yen |
| EUR/GBP | Euro / British Pound Sterling |
| NZD/AUD | New Zealand Dollar / Australian Dollar |
| EUR/CHF | Euro / Swiss Franc |
Following principals apply on trading in crosses.
- Crosses are usually taken into consideration as risky
- Crosses closely traded so they’re less liquid (in contrast of main pairs).
- Crosses are considered as highly unstable.
- Crosses can be easily manipulated
Exotics
Currency pairs concerning one of the foreign money of an evolving financial system are known as exotics.
Following list shows some of exotics
| Pair | Description |
|---|---|
| EUR/TRY | Euro / Turkish Lira |
| USD/TRY | United States Dollar / Turkish Lira |
| USD/DKK | United States Dollar/ Danish Krone |
| USD/HKD | United States Dollar / Hong Kong Dollar |
| USD/SGD | United States Dollar / Singapore Dollar |
| USD/MXN | United States Dollar / Mexican Peso |
That’s it, hope you enjoyed it. You like this article, have any questions or suggestions please let us know in the comments section.
Thanks and Happy Learning!
This article is part of a series on Beginner’s guide to online stock, forex and commodity trading.
** Thumbnail and Post Image By Business vector created by gstudioimagen – www.freepik.com
56 thoughts on “Forex Trading – Introduction to forex trading”
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