Business

Foreign exchange, or as it is referred to many times: “forex”, “fx”, or “currency exchange market”, is the term used to describe the trading of world currencies. A currency trade is the simultaneous buying of one currency and selling of another one, e.g. Buying US dollars with euros, buying British pounds with US dollars, selling Swiss francs for Japanese yens etc. The currency combination used in the trade is called a pair. We will dive more into this later on.

The foreign exchange market is by far the largest financial market in the world. Just to put things into perspective, the New York Stock Exchange (NYSE) daily volume fluctuates around US$30 billion per day. Forex market daily volume is estimated to be
around US$1.5 trillion! In fact, daily world stock and bond market volume added up is only a fraction of the daily forex trading volume.

We always hear the word “market” after mentioning forex and this usually invokes the idea of a central market place like the New York, Nasdaq or London stock exchange. This is not the case in the forex market. The forex market is considered an over the
counter (OTC) or “interbank” market, due to the fact that transactions are conducted between two counterparts over the phone or via an electronic network. Trading is not centralized on an exchange as in the case of stocks and futures. This is also the
reason why the forex market is a 24 hour market.

The following shows at what times forex trading takes place around the world:

Time zone	GMT
Tokyo Open	23:00
Tokyo Close	08:00
London Open	07:00
London Close	16:00
New York Open	12:00
New York Close	21:00

The major dealing centers today are London and New York, together covering approximately 50% of the daily trading volume. This is also the reason why most of the action in the forex market happens within those timeframes (7 GMT – 21:00 GMT).