Understanding How the Forex Works

The “Forex” is the common term for the foreign exchange, or even shorter FX – the most liquid financial market in the world. Trading is possible around the clock (except on the weekends). Unlike in the case of equities, it can generally be based on rising and falling prices, depending on the broker (up to 500:1).

There are many advantages that make Forex trades so popular with day traders.

How does Forex trading work?

Forex is traded in pairs of currencies, one currency against the other. The best-selling forex pair is EUR/USD (Euro against US Dollar), followed by USD/JPY, GBP/USD and CAD/USD. They “buy” one currency and “sell” another automatically, with more precise “long” and “short” transactions (because you can also “sell” what you do not own).

The goal is to make a profit any way possible. Many economic factors determine the exchange rates of the foreign exchange – the right assessment determines how well a day trader performs. Chart analysis and indicators can help with their trading decisions.

What are the Forex trading hours?

Basically, the forex trading is a 24-hour trading platform, except on weekends (or commercial holidays). It is by far the largest & most liquid market in the world. Trading starts on Sunday night and ends on Friday evening.

  • Sydney is open from 22:00 to 7:00 GMT (main trading hours)
  • London is open from 08:00 to 17:00 GMT (main trading hours)
  • New York is open from 9:00 to 5:00 EST (main trading hours)

Where is Forex traded and is it expensive?

Unlike equities, Forex trading does not take place on a stock exchange. It is also called “OTC”, meaning over-the-counter or interbank market: two counterparties trade with each other. When it comes to incurring costs, one can say that Forex day trading is cheaper than stock trading, since the order fees are usually not tallied.

Traders can use 50, 500 or 5,000 dollars per trade and choose their Forex leverage – many factors determine the trader’s chances and risks. Never forget: with all the products available to a trader, their “lifting” effect multiplies his or her profit possibilities as well as their losses! Familiarize yourself with risk management to limit risks!

Take a peek at Markus Heitkoetter’s YouTube channel for more details.