Forex Trading 101

Every new venture begins with the basics. Here is an introduction to the Forex market and just why the world’s pulse depends on international trade.   

Every time you use a product that was made in another country, you’re reaping the benefits of international trade. Among many reasons, countries rely on international trade to purchase a larger selection of quality goods and services at lower prices than those in the domestic economy.

However, in order to purchase foreign products or services, businesses and consumers may need to first purchase the currency of the country with which they are doing business. The buying and selling of currency or Forex trading takes place in the foreign exchange market or Forex Market. The value of one currency compared to another is an exchange rate.

While the traditional term “market” suggests a meeting in a physical location for buying and selling merchandise, the Forex Market has no such place. Instead, traders communicate via telephone and computers. The majority of FX transactions are conducted through three main centers: the United Kingdom, United States and Japan. The rest of the transactions by Forex brokers, banks and other traders occur in France, Australia, Singapore, Hong Kong, Germany and Switzerland.

The fast-paced world of the Forex Market is open 24 hours a day. A typical trading day starts at 8 a.m. in London, just when the Singapore and Hong Kong markets close. The New York market begins when it is 1 p.m. in London, and San Francisco joins the rest of the world later in the afternoon. Through paying attention to Forex signals and other strategies, banks, brokers, businesses and central banks from worldwide participate in buying and selling in the largest market in the world. Finally, when the market shuts down in San Francisco, the Singapore and Hong Kong markets are ready for another busy day.

When it comes to the foreign exchange-related activities performed by the Federal Reserve System and the U.S. Treasury, the Federal Reserve Bank of New York steps in to carry the load. According to the Federal Reserve Bank of New York, the bank “monitors and analyzes global financial market developments, manages the U.S. foreign currency reserves, and from time to time intervenes in the foreign exchange market.”

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