What is foreign exchange trading?

The foreign exchange market is the largest financial market in the world, with a daily trading volume of up to 5 trillion US dollars. As the main currency exchange mechanism, the foreign exchange market not only provides basic services for global commerce and trade. Such a huge transaction volume also provides various trading opportunities for those who want to invest in the foreign exchange market. Forex traders can buy or sell different currencies five days a week, 24 hours a day, and use leverage (increasing nominal trading volume) to speculate on global currency flows and market fluctuations.

The foreign exchange market is usually referred to as "foreign exchange" or "FX". It is a global, decentralized, over-the-counter currency trading financial market.

Global Market

  •  This is a global market, and all the quotes you see are the relative value of one country's currency to another.
  •  Global economic and political events drive these markets, which in turn affect the relative value of the currencies of the countries concerned, and thus change the value of currency pairs.

Decentralized market

  •  The decentralized market means that the foreign exchange market is different from the stock market in that it does not have a centralized exchange.
  •  Instead, financial centers around the world have formed a large 24-hour trading network that brings together different types of buyers and sellers, and the market is closed only on weekends.


Trading foreign exchange

For active traders, the foreign exchange market is not much different from other trading markets (such as stocks, commodities or fixed income markets). The foreign exchange market is also a place for buyers and sellers to trade, but the commodities bought and sold are currency pairs. The currency pair may be the euro against the dollar, the dollar against the yen, the pound against the dollar, the euro against the pound, or a combination of many other currencies.

Different currency combinations represent the value of one currency against another, and this relationship is expressed by a price. In the foreign exchange market, combined with the current economic and political status and expectations of the two countries, the price of a currency pair is actually the expected market value of one currency measured in another currency. From the perspective of stocks, the price mechanism of currency pairs is similar to stock prices.

Compared with other markets

The daily trading volume of the stock market is about billions of dollars, while the daily trading volume of the foreign exchange market is as high as 5 trillion dollars. Participants in the foreign exchange market include large banks, hedge funds and other financial institutions, global companies, and individual traders. Most foreign exchange transactions are the result of currency exchange involved in daily global trade. The huge daily trading volume of the foreign exchange market provides endless trading opportunities, while also allowing traders to make more diversified investments through the global foreign exchange market.

What factors play a key role in foreign exchange transactions? How does it compare to stocks? Let us illustrate with an example. Suppose a country's inflation rate or bank interest rate is both low and stable, its economic output is growing strongly, and its politics is very stable. One can expect that the currency of another country whose fundamentals are not so good will remain strong.

Let's take another example of stocks for comparison. Assuming domestic and global economic performance is strong, inflation is not serious, market competition has not weakened the company's product market share, product demand is stable, and worker production efficiency is high, then you can expect that the situation is not good compared to other fundamentals For the company, the company's stock will remain strong.

Similar to stocks, the short-term trend of foreign exchange currency pairs will be affected by some other factors, including technical analysis, short-term supply and demand, seasonal capital flow patterns, current prices, etc. These factors are generally in dynamic changes. Among them, the currency price rises or falls in real time. Open NATURAL SEVEN LIMITED account now and start your foreign exchange trading journey.

Scroll Top