The forex, or foreign exchange market, is the largest trading market in the world. Each day, more than trillion dollars are traded in the forex. Compare this to the billion each day that is traded on the New York Stock Exchange, and it is easy to recognize the massive size of the foreign exchange market.
So what is traded on the forex anyway? Quite simply, money is traded. When you buy a currency, you are simply buying one currency and selling another. That is why you see currencies listed in pairs (i.e. EUR/USD, USD/JPY, GBP/USD). When you trade the currency pair, you are buying one currency and selling the other.
Since you aren’t trading anything physical (i.e. corn, gold, oil, etc), currency trading can be a little confusing. But it is nothing more than buying stock in a country. For example, if you think that Great Britain’s economy will do well compared to the United States’ economy, you would buy GBP/USD.
Now each currency’s value is relative. What that means is that you can’t say the U.S. currency is worth so much each day. You have to look at the value of the U.S. dollar in relation to other currencies such as the Euro (EUR), the Great British Pound (GBP), and the Japanese Yen (JPY). One day the dollar may go up compared to the euro, but it may fall compared to the Yen.
The forex market is open 24 hours a day about 5 1/2 days a week. It first opens on Monday morning in Asia which is actually Sunday night in the U.S. It stays open until Friday evening in the U.S. You see, there is no central trading location to the foreign exchange like there is for stock markets or commodity markets. Currencies have to be exchanged whenever a country is open for business. A world-wide network allows you to trade any currency from anywhere in the world during any part of the day except weekends.
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