Understanding The Forex Market

Right now forex trading is being promoted as the Recession Proof Business of the 21st Century. Many investors got their fingers burnt in the recent stock market crash. They are looking for new opportunities to rebuild their retirement savings. Is forex trading the solution? Forex trading has got some benefits. You can trade forex from anywhere in the world. You only need a computer, an internet connection and a few hundred dollars to begin trading. But before you trade forex understand the forex market. The foreign exchange market most often called the forex market is the most traded financial market in the world. Average daily currency trading volumes exceed $2 trillion per day. To give you an idea it is 10-15 times the size of the daily trading volume on all the world stock markets combined. That is a mind boggling number isnt it.

There many players in the forex markets. Big banks, multinational companies and other institutions require foreign exchange to carry out their day to day business. While commercial and financial transactions in the currency markets represent huge nominal sums, they still pale in comparison to amounts based on speculation. By far the vast majority of the currency trading volume is based on speculation.

Traders buying and selling currencies for short term gains based on minute to minute, hour to hour and day to day fluctuations. Almost something like 90% of the volume in currency trading is speculative in nature.

The bulk of the spot currency trading almost like 75% takes place in the so called major currencies which represent the worlds largest and most developed economies. Additionally activity in the forex market frequently functions on regional currency blocs basis where bulk of the trading takes place between the USD bloc, JPY bloc and the EUR bloc representing the three largest economic regions.

Liquidity represents how much faster or easier it is to buy or sell an asset. Forex markets are highly liquid. In other words, liquidity is the level of buying or selling volume available at any given moment for a particular asset or security. A highly liquid market like the forex can see large trading volumes transacted with relatively minor price changes.

The forex market is open and active 24 hours a day from the start of the business hours on Monday morning in the Asia-Pacific time zone straight through to the Friday close of business hours in New York. At any given moment, dozens of global financial centers are open such as Sydney, Hong Kong, Tokyo or London and currency trading desks in those financial centers are active in the market.

Trading starts at the New York Stock Exchange at 9:30 AM EST and continues in the evening till 4:00 PM EST. However, in the forex market, there is no official starting time for trading day or week. But for all practical purposes the market kicks off when Wellington, New Zealand, the first financial center opens on Monday morning local time. It roughly corresponds to Sunday afternoon in US, Sunday evening in EU and early Monday morning in Asia.

Forex markets are open 24/5. In other words you can see around the clock action in the forex markets except on weekends. Sunday open represents the resumption of trading after the Friday close of trading in North America. This is the first chance for the forex market to react to news that may have happened during the weekend. Prices may have closed New York trading at one level. However, they may start trading at another level altogether at the Sunday open.