Basically, forex trading is the buying and selling of currencies. It is a decentralized, global, over-the-counter market. It determines the foreign exchange rates for every currency. It is open 24 hours a day, five days a week.
Open 24 hours a day, 5 days a week
Unlike other markets, the Forex market is open 24 hours a day, five days a week. This is because currencies are needed for international trade. The value of currency is constantly fluctuating. The price of a currency is based on its relative value against other currencies. This creates multiple trading opportunities.
Forex trading is conducted through a global network of exchanges, banks and market makers. All major currencies are traded in all of the main financial centers. The exchanges are closed on weekends and holidays. The Forex market is the largest and most liquid market in the world.
There are four major Forex trading sessions. These are the London session, the Asian session, the New York session and the Sydney session. The most active times of the day are during the crossover between the London and New York sessions.
Traders have the opportunity to trade directly with each other without the need for a third party. This allows for greater transparency and security in the process. This is also the first major move towards democratizing finance.
Decentralized markets are not controlled by a single institution, but by a network of technological devices. These devices include the blockchain. They are created to facilitate transactions through self-executing agreements, or smart contracts. This p2p exchange system creates a market on a transparent ledger.
The major benefits of decentralized markets are greater security, a reduction in fraud, and a higher level of trust between parties. Moreover, the system is capable of trading even if a single node is down.
Currency pairs traded
Buying and selling currency pairs in the forex market involves exchanging one currency for another. Traders also use fundamental analysis to evaluate the value of a pair. They look for resistance levels and levels of support.
For instance, EUR/USD is a currency pair that has the Euro and the US dollar. Buying the pair is equivalent to buying one euro for one US dollar. This pair has the highest traded volume of any currency pair.
The value of a currency is calculated by comparing the quote currency to the base currency. The base currency is the currency that is listed first. The difference between the bid price and the ask price is called the spread. The higher the volume of trade, the smaller the spread.
Generally speaking, Forex trading on margin requires the trader to put a percentage of the value of their position into the trading account. The idea is to take advantage of leverage, which is a fancy term for borrowing money from the broker.
The amount of margin needed to open a trade depends on the individual and their style of trading. For example, the required margin may be 5% for minor currency pairs. On the other hand, accounts trading more than 100,000 currency units typically have a margin of 1% or 2%.
To figure out the margin required for a particular trade, the trader needs to calculate the amount of equity he or she has in the trading account. This can be done by multiplying the number of currency units by the margin required.
Often described as the most liquid financial market in the world, the forex market has a staggering turnover of $6 trillion per day. While there is a high level of liquidity in the market, traders should be mindful of the volatility of the currency pairs.
While the term liquidity is often used in a generic sense, it is a specific measurement of the ease of buying or selling a particular financial asset. This includes stocks, government bonds, Treasury bills, and money market funds. It also includes the ability to sell a stock without impacting the price.
There are two types of liquidity in the forex market. The first is the type provided by a broker, and the second is provided by inter-bank liquidity providers.