FX: Forex, Foreign Exchange

The foreign exchange market (forex) is a market where the currencies of various nations are bought and sold. It is commonly abbreviated to Forex or FX. This is the world’s largest market, with about $3 trillion being traded on a daily basis. The scope of forex exchange is vast, with the market fulfilling purposes ranging from cross-border investment, currency speculation to trade in goods and services.

How the Forex Market Works

The forex market comprises of banks, commercial companies, hedge funds, investment management firms, brokers and retail investors. The market does not have any centralized exchange. Trading generally takes place through the interbank market, which is a network of more than a thousand banks. Each bank in the network trades directly with others with the help of an Electronic Broking System (EBS), where buy and sell orders are placed and then matched on the basis of price.

Interbank forex trading continues 24 hours a day, 5.5 days a week, from Monday through midday on Saturday. On a single trading day, the market opens in Australia and shifts operations throughout the day to Asia, Tokyo, Hong Kong, Singapore, Europe and New York. The forex trading day ends with the close of trading in New York.

In the forex market, trading always occurs in currency pairs. The pricing of a currency pair in this market is determined by the demand and supply of a currency in relation to the other in the pair. Apart from banks, currency pairs are bought and sold by individual investors via brokers.

Benefits of the Forex Market

The benefits of the forex market are:

• Highest liquidity: With a daily turnover exceeding $3 trillion, the forex market is the world’s most liquid market. A single trade amounting to $200-$500 million is not uncommon.


• 24-hour market: The market is open throughout the day at some part of the world. Hence, investors have the flexibility of making their own trading schedule.


• Extensive leverage: In this market, leverage can range from 50:1 to up to 500:1. This means that if you have $5,000 in your trading account and your broker is offering 150:1 leverage, you have the option of trading up to $750,000. This kind of leverage offers you an opportunity to earn immense profits, even with limited capital.


• Market trends: Trends in this market are never bearish, as a decline in the value of one currency represents a rise in the exchange value of another. Thus, investors have the opportunity to earn profits at all times.


• No cap on the lot size: An investor can trade a lot of an unlimited size at any given time and price.

Drawbacks of the Forex Market

The drawbacks of the forex market are:

• Highly unpredictable: Since the exchange value of a currency pair is dependent on several factors, it is extremely difficult to predict the course of the market.


• High losses: As investors can trade with large amounts of cash due to the high leverage offered by brokers, they can suffer substantial losses.


• Extremely volatile: The forex market is extremely volatile, with the exchange value of a currency pair changing several times within a trading day. A novice investor might get flustered with the volatility and suffer huge losses.

Forex Market - Further Information

Please find below widgets showing current spot prices for leading currency pairs, economic events than can impact key currencies, and links to our complete Forex Guides on EconomyWatch.com

eToro Forex Trading

eToro Forex Trading