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by Ashraf Laidi
Posted: Feb 22, 2010 5:00
Comments: 3035
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Discuss GBP
Central, Egypt
Posts: 0
13 days ago
Sep 4, 2019 16:44
What is forex?

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What is forex?
If you've ever gone on holiday and exchanged say, pounds for euros, then you've participated in the forex market. Simply put:

Forex is how individuals and businesses convert one currency to another.

Forex, also known as foreign exchange, FX or the currency market, is the largest financial market in the world. On average over $5 trillion worth of transactions take place every day. That's around 100 times more than the New York Stock Exchange (NYSE) - the world's biggest stock exchange.

As well as being traded by individuals and businesses, forex is also important for financial institutions, central banks, and governments. It facilitates international trade and investment by allowing companies that earn money in one currency to pay for goods and services in another.

Who trades forex?
There are a huge number of market participants looking to trade forex at any particular time, from individual speculators wanting to turn a quick profit, to central banks trying to control the amount of currency in circulation.

However, by far the most significant players in the forex market are the major international banks. Between them, Citigroup, Deutsche Bank, Barclays, JPMorgan and UBS account for around 50% of global forex trade.

Euromoney FX Survey
Why do people trade forex?
Individuals and businesses participate in the forex market for two main reasons:

The vast majority of forex transactions are made simply to make money. This means the person or institution making the trade has no plans to take delivery of the currency, they are just looking to turn a profit on movements in the market.

With major financial institutions always looking to profit from small changes in forex prices, many large trades can occur throughout the day. This activity means currency rates are some of the most consistently volatile financial markets in the world - which in turn provides more opportunity for speculators to make money.

Purchasing goods or services in another currency
Every time a transaction is made between two entities in different regions, a foreign exchange transaction needs to take place to pay for the goods or services exchanged. Transactions such as this happen globally, every second of every day.

Despite the number of transactions, the amount of currency traded is often very small compared to trades made by large speculators. Therefore commercial trading tends not to have such a big effect on short-term market rates.

How do you trade forex?
Unlike share trading, forex is an over-the-counter (OTC) market. This means that currencies are exchanged directly between two parties rather than through an exchange.

The forex market is run electronically via a global network of banks - it has no central location, and trades can take place anywhere via a forex broker of your choice. This also means that you can trade forex at any time, so long as it's during trading hours in any one of the four major forex trading centres (London, New York, Sydney and Tokyo).

Forex trading hours: April-October (UK time)
Forex Trading Hours
In practice, that means you can trade most forex pairs from around 21:00 or 22:00 (UK time) on Sunday to 21:00 or 22:00 (UK time) on Friday, every week. The exact times can vary due to daylight saving time changes in the UK, USA and Australia.

How does a forex trade work?
Forex prices are always quoted in pairs such as AUD/EUR, which stands for the Australian dollar versus the euro. This is because if you want to purchase Australian dollars you need to buy them with another currency, like euros.

When trading forex you are simultaneously BUYING one currency while SELLING another.

Lesson summary
Forex is how individuals and businesses convert one currency to another
The main players in the market are major international banks
Speculation accounts for the vast majority of transactions
It's an over-the-counter (OTC) market, where trades take place directly between two parties rather than through an exchange
Forex is traded in pairs - you are simultaneously buying one currency while selling another
The first currency in every pair is the base or primary currency. The second is the quote or counter currency
London, UK
Posts: 0
2 months ago
Jul 10, 2019 11:46
GBP has been more or less stable these days (even tending to the rise I'd say). I'm planning a trip to California this winter, so I'm just thinking when I should exchange gbp to usd. I regularly check to get the latest news.
London, UK
Posts: 0
2 months ago
Jul 4, 2019 9:45
You cannot predict the exchange rate nowadays, everything is just changing so quickly. I've just checked the eur to usd chart on as I'm going to the USA soon abd it's just unbelievable how rappidly the things change.
Ashraf Laidi
London, UK
Posts: 0
3 years ago
Jan 27, 2017 15:04
Welcome back DaveO & Quiman

N.Cornwall, UK
Posts: 5733
3 years ago
Jan 24, 2017 19:14
I sincerely hope our dear prime minister Teresa May will not get groped when she visits new president Donald Trump. Perish the thought, whatever made me think that.
United States
Posts: 237
3 years ago
Nov 7, 2016 19:17
The problem I always encountered with using correlations over the years is that one never knows when they will come to a screeching halt, due to other energetic vectors coming into the equation.

As just one example today the US stocks are up huge, and the Pound down. This strong correlation that was develping with the Pound and US stocks for awhile has had to deal with various UK domestic headlines that can pull it in all kinds of directions.
United States
Posts: 237
3 years ago
Oct 12, 2016 15:16
I found Ashraf's post on Cable's increased correlation with US stocks over this last month to be one of the more important insights in awhile on this currency pair. Planning to watch this more carefully myself and hopefully put it to great use. Thanks Ashraf!
Ali Sharifazadeh
Tehran, Iran, Islamic Republic of
Posts: 0
4 years ago
Mar 4, 2016 17:42
It is a bit strange that Cable has been able to go this higher when the Brexit fears have not been gone completely and all of the PMI reports this week disappointed.

Where do you think the bears return?
Frank Junior
haala, Bahrain
Posts: 0
4 years ago
Jan 25, 2016 9:59
I learnt trading by watching videos and learnt all strategies very efficiently!!Doing quite well now!!
New York, United States
Posts: 305
4 years ago
Jan 19, 2016 4:30
GBP/NZD daily chart - looks like a 3rd gravestone doji formed AND the death cross 50DMA below the 200DMA is confirmed. Look what happened after the last two gravestone dojis... Perhaps they're not perfect "gravestone dojis", but looking close and good. I prefer GBP/NZD short over GBP/AUD short due to less involvement with China and most likely, less interest rate risk involvement. A short to consider! Thoughts???