What is the Foreign Exchange Market?

The foreign exchange market, or the Forex market for short, is a global financial marketplace where currencies are bought and sold against each other. The total daily turnover of the global Forex markets is made up of every foreign currency exchanged for another, whether it’s between market makers such as big banks or just individual investors. It may sound huge, and it is, but unlike other financial markets, the way it functions is quite simple. Therefore it’s easier to learn the basics of trading in the foreign exchange markets. Currencies are bought and sold against each other at a certain rate. If you buy a currency when its price low and sell it when it’s high, you make a profit on your investment capital, i.e. you make money. It’s as simple as that. The only tricky part is knowing what moves the foreign exchange market, how the different factors affect it, and in which direction the currency prices will move next.

FX Market: The Basics

Market Hours

One of the basics that you need to know is the FX market hours. Unlike other world markets, the Forex market is open 24 hours a day, so you don’t need to worry about what time the market will be open. Although it’s open all the time due to the four different world trading sessions, you should only monitor the market closely during the busiest sessions which are the New York and London sessions. The official recommended time to trade is when these two sessions overlap, however the market can move quite a lot even when only one of these sessions is taking place. The weekends are market holidays and there is no trading activity going on.

Leveraged Trading

One of the other appealing characteristics of this market is that most dealers offer leveraged trading. Leverage is a kind of lending procedure in which the dealer multiplies your investment by as much as 1:400 to enable you to make profits from slight moves in currency rates without needing huge investment capital. However, you should always careful with leverage because the higher your leverage, the higher your risk. To guard you from taking extra risk, eToro provides you with the option of Responsible trading.

You are lucky to be interested in the foreign exchange market at this particular time because there are so many free resources available at eToro. The eToro investment network presents you with free online browser-powered software, a free currency converter, a free rates widget and educational materials such as guides, tutorials and glossaries that will teach you to spot Forex trends and catch swings in the market. You can also use eToro OpenBook to learn forex market strategies from the top traders, and even copy these strategies automatically!