Forex tutorial

Forex Fx online tutorial Pt 3 

How the foreign currency market works?

The foreign currency market (forex, FX) does not have a place, no building, no trading floor. Actually is a network of telephone lines and electronic trading platforms.

There is “no exchange”.

The off – exchange foreign currency market operates in two levels.

The first level or the primary market or the “interbank market” for currencies where Institutional Investors – banks, insurance companies, large industrial corporations and other financial institutions manage the risks associated with the volatility (fluctuations) in currency rates.

The accessibility to interbank market is restricted only to institutions that trade in large quantities and they have a very high net worth. In interbank market there are no retail – customers (investors, traders).

During the last years, cause of technological developments in financial web based applications a secondary over the counter (OTC) market has been developed that permits retail customers (private individuals / investors, traders) to participate in foreign currency transactions.  This secondary over the counter (OTC) market operates in parallel with the interbank market, both markets share the same characteristics.

The size of Forex market – How big is the FX market?

According to wikipedia, the daily turnover is about 3,94 trillion USD. Forex daily turnover is about 80 times larger than the combined volume of all US equity markets.

The off exchange forex market is a huge and liquid financial market that operates 24 hours a day, for five (5) days a week.

As I have mentioned on previous articles the foreign exchange market (forex, FX) has no physical location or central exchange.

Forex is a real 24 hours market. Transactions in foreign currency start every day from Wellington New Zealand and Sydney – Australia and moves around the globe as the business day starts in each financial center, first Tokyo, then London and finally New York.

Forex market cause to it’s unique characteristic to operate 24 hours per day offers a unique opportunity to private individuals (retail customers) to respond to currency fluctuations caused by economic, social and political events 24 hours from Monday to Friday.

I need to highlight the differences in market liquidity in relation with the currency rate that participants trade or the liquidity in relation with the opening of specific financial center. Usually when London is open the liquidity is larger.

I will cover this topic about liquidity in relation with financial centers and specific (or group) currency exchange rate in a future article.

Synopsis

We need to highlight that foreign exchange currencies market (forex, FX)

(1). It’s huge

(2). It operates 24 hours a day for 5 days a week

(3). Has no physical location or trading floor

(4). It’s over the counter (OTC) – it’s a network of telephone lines and trading platforms

(5). There are two markets – the primary market where large financial institutions hadge their exposure to currency transactions and – the secondary where private individuals can participate.

(6). Both markets, the primary and secondary, share common characteristics.

Forex is a large and liquid market. There is a plenty of available opportunities for profit taking through trading but also unlimited (απειλές) for losses.

Only through knowledge a private individual can build a competitive advantage and achieve serious financial goals in foreign currency exchange market.

Elias Stoikos

Relative aricles 

1. Introduction to Forex

2. Forex tutorial Part 2

3. Forex Tutorial Part 3

Relative resources 

1. Forex on wikipedia